Killer Companies: Time to tune in to Viacom
The media conglomerate's 'unprecedented' investment in content is paying off.
After ratings at some of Viacom's (VIA) cable channels, such as Nickelodeon, started declining a few years ago, CEO Philippe Dauman vowed to make what he called "an unprecedented investment in content." It appears that money was well spent.
Shares of the media conglomerate hit a record high last week after the New York company reported better-than-expected quarterly results and announced plans to double its existing stock buyback program.Net income in the most recent quarter increased 20% to $643 million, or $1.31 a share, fueled by gains in advertising revenue and strong box office performances from "Star Trek Into Darkness" and "World War Z." Sales jumped 14% to $3.69 billion. Operating income jumped 24% to $1.16 billion at Viacom's Media Networks business, which includes Comedy Central, MTV and BET.
Excluding one-time items, profit missed consensus forecast by one penny. But Wall Street was willing to overlook the earnings shortfall because of the stock buyback and Viacom's robust performance overall.
There are a few reasons why investors should continue to feel optimistic about Viacom. First, as analyst Todd Juenger of Sanford C. Bernstein argues, advertisers will continue to flock to MTV and Nickelodeon because they "have few alternatives to reach those age groups." Popular shows such as "The Daily Show" have huge followings online, where people are increasingly watching video content.
Investors should tune into Viacom's stock as well. It trades at a price-to-earnings ratio of 18.06, below Walt Disney's (DIS) and Time Warner's (TWX). Analysts at Maxim Group recently raised their price target on the stock to $90. That's well above the $79 where it recently traded.
Viacom's stock could rise even higher if it continues to draw the young viewers coveted by advertisers. The time for investors to act is now.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.
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