Despite downgrade, Viacom still a 'buy'

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NEW YORK -- Wall Street analysts seem to agree that there is further upside in shares of Viacom Inc., but they disagree on whether there is enough upside to keep a "buy" rating on the stock.

Goldman Sachs analyst Anthony Noto on Monday removed Viacom shares from his firm's Americas "buy" list and downgraded them to "neutral."

While he forecasts about 8% upside to his 12-month price target of $42 price target, that target is $2 below his previous target.

Wang also cited "greater appreciation (potential) of 21% and near-term catalysts" at News Corp., which he upgraded Monday to a "buy" and added to the Americas buy list.

"Viacom shares are down 7% since we initiated (coverage of them) on Jan. 11," Noto said. "While we believe that Viacom should continue to benefit from its 'branded content' assets and underleveraged entertainment assets, we have lowered our long-term, double-digit growth rate."

Noto also emphasized that "we still view Viacom's industry-leading 12% return on invested capital favorably and believe that Viacom's flagship cable networks provide advertisers some of the best ways to access hard to reach audiences."

Still, News Corp.'s stock has more room to move up, with about 20% upside to his 12-month price target of $25, up from $21, Noto said.

A potential asset swap with Liberty Media could boost his price target to about $27, he added.

Meanwhile, Bear Stearns analyst Spencer Wang on Monday reiterated his "outperform" rating on Viacom shares -- equivalent to a "buy" -- citing three catalysts. They are U.S. advertising growth, a turnaround in international businesses and "Shrek the Third"-driven film unit strength.

"Despite the (Class B stock's) 10.5% rebound, versus an 8.5% average rise in its peers and a 3.1% increase in the S&P 500 (index)" since Tom Freston's resignation as CEO on Sept. 5, "we continue to believe that further upside exists and we reaffirm our $47 price target," he wrote.
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