When Viacom and CBS Corp. closed their recombination in December, many Wall Street analysts said that the new ViacomCBS would have to prove the financial and strategic benefits of the latest entertainment industry mega-deal. In February, when the merged company, led by CEO Bob Bakish, unveiled its first quarterly earnings report, the stock tanked on weaker-than-expected results and doubts about the company’s streaming strategy. And then the novel coronavirus pandemic dealt the stock another blow.
Since then though, some analysts have called the roughly 44 percent hit that ViacomCBS has taken over the first half of this year to close Tuesday at $23.32, overdone, despite a 65 percent gain in the second quarter, with Barron’s recently listing it as one of the 10 cheapest stocks in the broad-based S&P 500 stock indexes.
The majority of analysts, 13 to be precise, continues to rate the company’s stock a “hold,” but it also currently has five “strong buy” and five “buy” or “outperform” recommendations, while two analysts recommend investors “sell” it. And several analysts have as of late raised their stock price targets on ViacomCBS, with some also saying they have come around on the company’s streaming strategy.
Needham & Co. analyst Laura Martin in a Friday report boosted her price target for ViacomCBS, which she rates a “buy,” by $10 to $30, citing the company’s “hidden asset values” and its “inexpensive valuation.”
Explained the analyst: “We believe COVID-19 is a catalyst for ViacomCBS to push through cost-cutting synergies from the merger with CBS faster than expected; and we believe there is significant hidden value in Paramount’s library and in ViacomCBS streaming services,” as well as the former CBS headquarters building in Manhattan and publisher Simon & Schuster, both of which management has said it will sell.
Addressing the planned sales, which have been delayed by the novel coronavirus pandemic, Martin highlighted: “ViacomCBS is valued below its book value, so any asset it sells at or above book value creates value” for stockholders.
Before Martin, Citi analyst Jason Bazinet had in a June 23 report lifted his price target on ViacomCBS shares by $7 to $27, while maintaining his “buy” rating. Based on stronger-than-expected first-quarter financials, he increased his earnings estimates for 2020, 2021 and 2022.
Similarly, Macquarie Capital’s Tim Nollen in a June 19 report raised his 2020 financial estimates and his target price by $8 to $26, while continuing his “neutral” rating on ViacomCBS. “Cost savings through the merger should lead to better earnings,” he wrote. “The company is front-loading the effort with $200 million in restructuring costs in the first quarter alone, versus [its] target of $250 million in cost synergies for the full year 2020.”
A day before that, MoffettNathanson’s Michael Nathanson had boosted his price target on “neutral”-rated ViacomCBS by $2 to $21 driven by upwards earnings revisions amid “improving” advertising trends across the media sector after a “dismal March/April.”
J.P. Morgan’s Alexis Quadrani in a June 11 report also raised her stock price target, in her case by $5 to $32, maintaining her “outperform” rating. “ViacomCBS shares have rallied impressively off a bottom set in late March, which reflects several factors, including the market move, recognition of April as a bottom for advertising, and a pay TV ecosystem that has held relatively stable during this period,” she wrote. “While we saw short covering initially, much of the recent strength includes real long buying.”
And she concluded: “In the low $20 range – and certainly in the teens – ViacomCBS is simply not priced appropriately for the ultimate value of its content and brands.” She also sees the potential for a “next leg higher,” but said that will “require investors gaining confidence in the company’s streaming and third-party licensing strategy.”
Back on June 8, Imperial Capital’s David Miller had maintained his “outperform” rating and lifted his price target by $3 to $45, highlighting in a report that day that this was “about 80 percent above the recent share price.” And he argued: “After all the blunders and mishaps seen post the announcement that the legacy Viacom and CBS were re-uniting, as well as the ensuing fallout in the stock price throughout the fall and into the winter, it feels like we are finally making some progress.”
Miller also said he sees investors turning more positive on the company, predicting: “The market will continue to reward ViacomCBS with a higher stock price based on the myriad of catalysts we laid out [in a June 1 report], including higher [ad rates] for SEC football and NFL football once those events resume in the fall, and the [December] release of Top Gun Maverick, which has the potential to be Paramount’s first $1 billion-plus grosser since Transformers: Age of Extinction (2014).”
Meanwhile, Sanford Bernstein analyst Todd Juenger has remained one of the big ViacomCBS bears, rating it “underperform” with a $12 price target. In May, he had written that YouTubeTV adding 14 ViacomCBS cable networks would “reset the stock at a new, higher level,” but also warned that “from there it still faces the same fierce structural headwinds on viewership and subscribers as everybody else.”
ViacomCBS’ streaming strategy has been a big topic of debate on Wall Street. Earlier in 2020, some analysts took issue with Bakish’s approach of using some of the firm’s content on its own networks and services, which include CBS All Access, advertising-supported Pluto TV and others, while also licensing other programming to third parties. On Wednesday, NBCUniversal’s Peacock bulked up its library content ahead of its July 15 national launch in a sprawling non-exclusive licensing deal with ViacomCBS that includes multiple films and TV series, including Paramount’s The Godfather trilogy, Showtime’s Ray Donovan, CBS’ Undercover Boss and BET’s Real Husbands of Hollywood.
Martin said in her recent report that she sees the business upside from this dual approach. “Film and TV libraries are becoming more valuable over time,” she wrote. “With 140,000 TV episodes plus 3,600 films in the ViacomCBS library, this suggests valuable optionality to maximize economics through either developing or licensing its intellectual property (IP) to others.”
The company is also producing 750 series globally for itself and others. “In most cases, ViacomCBS retains the IP after an exclusive airing period by the company that paid for the content,” explained Martin. “In this way, ViacomCBS is growing its IP library using other people’s money.”
Quadrani has also become more bullish on the company’s streaming strategy. “Recent meetings give us more confidence ViacomCBS can pursue streaming and [the] content license model,” she wrote, explaining that one “universal theme” of her recent conversations with sector players has been “the outsize demand for content at the moment.”
She argued that ViacomCBS is “well positioned” in this environment with two studios, Paramount and CBS Television, adding: “While a cost-plus model for third-party sales limits upside, this is partly offset by high volume as many streamers are unable to meet their needs with in-house production arms. At the same time, international demand (from streamers and broadcast) is still there, so we expect ViacomCBS can still realize upside in instances where it doesn’t license global rights.”
And LightShed Partners analyst Rich Greenfield in a June 23 report wondered out loud: “Are ViacomCBS’ streaming ambitions far bigger than investors realize?” He cited the planned expansion of CBS All Access into a broader-based streamer and the recent news that The SpongeBob Movie: Sponge on the Run would not hit movie theaters and instead get a premium video-on-demand launch in early 2021 before moving directly to the revamped streaming platform.
“While we have no idea how much ViacomCBS is going to spend on the relaunched All Access, the SpongeBob move has us believing that the company’s ambitions go far beyond niche SVOD player,” Greenfield wrote. “They are looking to create a well-rounded, four-quadrant service, more akin to what Netflix and HBO Max are doing.”