Four Big TV Players Get Updated Financial Models


Brian Wieser, the prolific Senior Research Analyst for Advertising at Pivotal Research Group, has just updated the Wall Street advisory firm’s financial models for CBS Corporation, Discovery Communications, The Walt Disney Co., and Viacom.

Why? He’s incorporated year-end 2019 price targets, which are generally higher.

This is good news for Viacom shareholders.

The price targets, Wieser says, are generally higher because of the new valuation dates.

But, with a >15% gap on Pivotal’s Viacom price target compared to current trading levels, he upgraded Viacom’s Class B shares from “Hold” to “Buy.”

With under an hour to go in Tuesday’s trading, VIA-B was trading up 9 cents, to $29.98.

Meanwhile, Pivotal is maintaining its “Sell” rating on Disney, while keeping its “Hold” ratings for CBS and Discovery.

The updates from Wieser came as Pivotal’s view on video-centric media owners remains unchanged.

“Cable network distribution revenue are generally growing at close to a mid-single digit pace as low single digit subscriber declines are more than offset by rising prices for remaining subscribers,” he said.

Retransmission consent and reverse retrains fees are still growing at a much faster pace as broadcasters assert their place “as the dominant video properties in any home with a cable package (or with an ISP who chooses to make internet delivery cheaper to a subscriber when paired with basic video services),” Wieser added.

National TV advertising is trending flat to slightly negative with broadcast similarly outpacing cable. And, Wieser said, profit margins for the combined sources of revenues are generally falling every year as costs continue to rise, led by significant increases in costs for sports rights as well as the need to produce high end content more generally.

“All of these trends contribute to a baseline of relatively slow ongoing profit or cashflow growth for video networks, with idiosyncratic trends at each of the companies referenced impacting our views on their stocks,” he noted.

At CBS, managerial changes (or the absence of further changes) is probably be the most important issue to monitor at the company, Wieser believes, with analysts and other observers guessing who will end up running CBS as a stand-alone entity or if it will simply combine with Viacom in due time.

Then, there is rumored reunification partner Viacom, which faces many of the same issues impacting Discovery.

However, “managerial normalcy” is by now “reasonably well entrenched” at Viacom, which Pivotal views as a positive as it rebuilds.

“The film studio is the one significant part of the business which provides meaningful upside given its scale and the likelihood that it will return to profitability (enhancing Viacom’s overall profit margins),” Wieser said.

A downside remains in the company’s sub-optimal ownership structure, he added, but upside probably exists for Viacom if that same ownership structure ultimately leads it to a merger with CBS and the elimination of many duplicated expenses at some point in the future.

“Overall, the benefits of growth in profitability at Paramount help sustain growth for the overall company,” he said.

What about Disney? “Overall, while we continue to believe that Disney is the best positioned among peers on a strategic basis, on a relative basis versus other companies we cover, we continue to see the stock as relatively overvalued,” Wieser writes.