Analyst Upgrades Viacom Stock Rating Despite Longer-Term 'Storm Clouds'

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Viacom CEO Philippe Dauman

"If the stock didn't go down in the face of negative catalysts, we don't expect it will in their absence" in the coming quarters, says Sanford C. Bernstein's Todd Juenger.

Sanford C. Bernstein analyst Todd Juenger on Thursday upgraded his rating on Viacom's stock from "underperform" to "market-perform," citing a lack of negative catalysts over the next few quarters.

He also boosted his stock price target on the company, led by CEO Philippe Dauman, from $64 to $73.

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"Over the past year, there have been a series of negative catalysts, none of which have had a lasting negative impact on the stock," Juenger wrote in a report. "For the next few quarters, there are no foreseeable catalysts. If the stock didn't go down in the face of negative catalysts, we don't expect it will in their absence."

But, he emphasized, "we are not basing our upgrade on a rosy operational outlook. Once again, there are storm clouds gathering on the horizon -- although it won't become visible until well into fiscal year 2014."

Juenger said that troubling events include "declining subscription VOD revenue, rising borrowing costs and loss of earnings at Paramount." Plus, the analyst cited "decimated ratings at Nick Jr.," asking: "With Nick Jr.'s ratings down 75 percent year-over-year, where are Nickelodeon's future audiences going to come from?"

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Juenger also said that "our track record on Viacom has been a frustrating combination of being fairly prescient about troubles with the business operations, but mostly wrong about the stock."

He highlighted that Viacom's net income have been "essentially flat" since 2011, while the stock is up 79 percent over the same period.

"While more than half of that increase is due to market multiple expansion, the other half is from buyback-led earnings per share growth," Juenger concluded. "If the market wasn't concerned with Viacom's valuation when observable bad things were happening to the business, it isn't going to be interested now in more ethereal arguments about long-term deterioration and terminal value."

Twitter: @georgszalai