Barclays analyst bullish on Viacom


Ahead of the Upfront, Barclays Capital analyst Anthony DiClemente has reiterated his positive outlook on Viacom. He’s also raised his price target to $55 from $50. The stock had closed at $47.78 on Wednesday (4/20) ahead of the analyst’s note to clients.

“We believe MTV’s recent ratings success in the 12-34 demo positions its ad sales force well for upfront negotiations, and as a result, could lead to low double-digit CPM increases at its upfront. Likewise, we believe Nickelodeon, Viacom’s largest network as measured by total day viewership, is likely to secure double-digit pricing and volume increases in the upfront given its exposure to categories like toys, entertainment, and video games, which have all been performing well as of late, according to our channel checks. We also believe that new media advertising categories such as mobile devices (smart phones and tablets) have provided incremental ad dollars given the younger-skewing MTVN demographics,” DiClemente advised clients.

According to the analyst, the valuation of Viacom is still attractive compared to its peers.

“We believe Viacom shares remain attractive on valuation relative to the broader media group and especially pure-play cable companies SNI [Scripps Networks Interactive] and DISCA [Discovery Communications]. VIAB [the widely traded Class B stock] currently trades at 10.6x our FY 2011 FCF estimate of $2.3B, more than a 4 turn discount to the group. On P/E, VIAB’s 2011 multiple of 13.3x is 1.5 turns below the group and roughly 4.5x turns less than SNI and DISCA, VIAB’s closest comparables, in our view. Our new price target of $55 implies a valuation of 15.4x our CY 2011 EPS estimate of $3.58, a modest half turn premium to the group. Our prior price target of $50 implied a valuation of 14.0x our CY 2011 EPS estimate of $3.58,” the Barclays analyst wrote.

“We believe VIAB has one of the most compelling return of capital stories in media, as the company plans to repurchase $4B in stock over the next two years. We estimate that VIAB will repurchase at least $1.75B in stock for FY 2011, and $2.25B in FY 2012,” DiClemente said in his bullish report.