Stifel Keeps Buy Rating On Viacom (VIAB)

Stifel analyst, Benjamin Mogil, cut estimates on Viacom (NASDAQ: VIAB) and reduced his target price to $49 from $70 but kept his Buy rating because continued SVOD hold-backs and increased programming investments should support ad trends.

Affiliate guidance growth slowed: While the culprit noted was the AT&T/DTV rate card harmonization, given that there was likely expectations for such a move since that merger was announced, we suspect that lower SVOD expectations and conservative posturing ahead of the DISH renewal are also likely at play, given the size of the AT&T footprint. They expect SVOD to be flat to slightly down for the year as the company both holds back product and continues to focus on smaller platforms.

On the advertising front, excluding MTV and Comedy Central, advertising was positive with the trajectory in the current quarter similar to the last quarter and with the company continuing to target positive domestic advertising growth by 4Q16, in-line with prior estimates. Programming expense guidance of mid single digit reflects the continued ramp in new programming.

There was far less commentary on capital returns than in prior quarterly calls, and they expect no buybacks this year as the company de-levers with debt repayment of $767mn this year. Ironically, given the company's penchant for capital returns and the limited amount of M&A it has done over the past few years, the analyst would not view a slowing down in the buyback pacings as negative in favor of more internal and external investments.

The new $49 target price is 8.25x 2016E EV/AOI or 9.25x 2016E P/E.

For an analyst ratings summary and ratings history on Viacom click here. For more ratings news on Viacom click here.

Shares of Viacom closed at $32.86 yesterday.

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