UPDATE: Wells Fargo Upgrades Viacom (VIAB) to Market Perform

(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."

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 $35.12 yesterday.

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