UPDATE: Wells Fargo Upgrades Viacom (VIAB) to Market Perform
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(Updated - October 13, 2016 8:07 AM EDT)
Wells Fargo upgraded Viacom (NASDAQ: VIAB) from Underperform to Market Perform. Analyst Marci Ryvicker really likes CBS Corp. (NYSE: CBS) and she sees less downside in Viacom. She also said CBS-VIAB combo does not appear imminent.
Ryvicker explained, "From the outset, this CQ3 was unique/weird, with ratings skewed by the national conventions, Olympics and 1st Presidential debate, as well as all the noise over NFL viewership declines (which we don’t think is a trend – see our 10/12 companion note entitled “MEDIA: It’s Really Not That Bad…CQ3 Themes”). With CQ3 reports around the corner, we checked in with our contacts, reviewed conf. call transcripts, & crunched a bunch of data. At the end of the day, we reduced CQ3 ests. for DIS, FOXA & VIAB (we also reduced VIAB’s val.), we raised TWX and we left CBS as-is. Relative to Consensus, we are BELOW for DIS & VIAB, and IN-LINE FOR CBS, FOXA & TWX. For F’16 & F’17, we lowered DIS & VIAB and left CBS and TWX as-is. For FOXA, we reduced F’17 & F’18. Our top pick in media remains CBS; while we are a little more cautious on DIS. And while we are still troubled by VIAB, we don’t see another 20% of downside here – thus we upgrade to Market Perform."
Discussing the recent M&A rumors, Ryvicker added, "A CBS-VIAB combo does not appear imminent. But if/when it does happen, we don’t see CBS paying less than $32-33 in a take-under, which doesn’t present much downside risk (we downgraded VIAB to Underperform on 7/10). The one piece we believe people are missing is incremental programming cost in a VIAB turnaround--we forecast AT LEAST $250MM, which offsets a lot of our initial $400MM synergy est. We cut VIAB ests & reduced the val. range to $33-35. BUT, we upgrade to Market Perform as we believe we’re close to the pot’l floor."
Shares of Viacom closed at $35.12 yesterday.
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