Is ViacomCBS a Buy Under $35?

ViacomCBS Inc. (VIAC) in New York City operates as a media and entertainment company worldwide. The company operates through TV Entertainment, Cable Networks, and Filmed Entertainment segments. VIAC plans to focus on organic growth and global expansion opportunities but has no immediate merger plans. “I think our growth trajectory is actually pretty high at this point in time,” said ViacomCBS Inc Chair Shari Redstone.

The company plans to sell CBS Studio Center for nearly $1.85 billion to raise funds and invest in strategic areas, including streaming services. This aligns with VIAC’s earlier announcement concerning its restructuring plans for Paramount Pictures' movie and television production unit. It aims to ramp up content on its cable and streaming services. The company’s restructuring plans should boost its overall operations and strengthen its position in the streaming-first world.

VIAC shares have slumped 30.3% in price over the past six months and 20.3% over the past month to close yesterday’s trading session at $29.56. The stock is trading below its 50-day and 200-day moving averages. VIAC shares hit their 52-week low of $28.90 in yesterday’s trading session. The media giant reported a solid streaming revenue growth in its latest quarterly result. However, its net earnings declined. Furthermore, the Street expects VIAC to deliver negative earnings growth in the current quarter. The stock’s near-term prospects look uncertain, given the anticipated negative returns. And though the company’s restructuring plans should help improve its financials, it might take a while before significant improvements can be seen.

Here is what could shape VIAC’s performance in the near term:

Top Line Growth Does Not Translate into Bottom-Line Improvement

VIAC’s total revenues increased 13% year-over-year to $6.61 billion in its fiscal third quarter ended September 30. Its streaming revenue surpassed $1 billion for the first time, with 62% year-over-year growth.

However, its operating income stood at $879 million, down 3% from the same period last year. Its net income attributable to VIAC declined 12.5% from its  year-ago value to $538 million. The company’s adjusted earnings per share were $0.76, indicating an 8.4% decline year-over-year.

Analysts expect VIAC’s EPS to decline 56.7% in the current quarter and 30.3% in the following quarter. Its EPS is expected to decrease 12.9% year-over-year to $3.66 in the current year.

Mixed Profitability

VIAC’s 39.89% gross profit margin is 22.8% lower than the 51.66% industry average. Also, its 18.09% EBITDA margin is 16% lower than the 21.55% industry average.

However, VIAC’s 17.72%, 5.89%, and 7.40% respective ROE, ROA, and ROTC compare with the 9.36%, 3.00% industry averages.

Reasonable Valuation

In terms of forward EV/Sales, VIAC is currently trading at 1.25x, which is 49.4% lower than the 2.48x industry average. Also, its 7.23 forward P/E ratio is 59.9% lower than the 18.04 industry average. VIAC’s 0.69x forward Price/Sales is 58.6% lower than the 1.66x industry average.

POWR Ratings Reflect Uncertainty

VIAC has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Quality, consistent with its mixed profitability.

VIAC also has a C grade for Stability. Its 60-month beta of 1.10 justifies this grade.

Of the 18 stocks in the Entertainment - Media Producers industry, VIAC is ranked #10.

Beyond what I have stated above, you can view VIAC’s grades for Value, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Entertainment - Media Producers industry here.

Bottom Line

The media giant VIAC is focused on ramping up its streaming services and restructuring, positioning it for long-term growth. The company is reasonably valued currently. However, there remains uncertainty regarding its near-term prospects, considering analysts’ expectations of negative earnings growth. Thus, we think it could be wise to wait for its underlying fundamentals to improve before investing in this stock.

How Does ViacomCBS Inc. (VIAC) Stack Up Against its Peers?

While VIAC has an overall POWR C Rating, one might want to consider looking at its industry peer, News Corporation (NWSA), which has a B (Buy) rating.

VIAC shares were trading at $30.44 per share on Friday afternoon, up $0.88 (+2.98%). Year-to-date, VIAC has declined -17.12%, versus a 22.19% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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