By Emily Bary
G.research analyst upgrades Viacom stock, sees company as perhaps better positioned to negotiate merger deal with Discovery
ViacomCBS Inc. shares are on track to snap a five-day losing streak and an analyst sees reason for optimism ahead.
It has been a volatile stretch for Viacom shares (VIAC), which surged more than 700% in the 12-month period leading up to last Tuesday, when the stock began a sharp five-day decline. With the stock price now down more than 50% from its earlier March highs, the risks to Viacom around cord-cutting and the demise of the television bundle "remain well known," according to John Tinker, an analyst with G.research.
He upgraded Viacom shares to buy from hold Tuesday morning, just two weeks after downgrading them. Tinker now has a $74 "private market value" on the stock, which is up 4.3% in midday trading to roughly $47.
Tinker acknowledges that ViacomCBS still is late to the game in streaming, and competes against well-managed competitors like Amazon.com Inc. (AMZN) and Netflix Inc. (NFLX). But the company's management team led by Chief Executive Bob Bakish "probably understands these problems better than anyone" and now is "managing a single company, an unlikely idea only one year ago when previous acting CBS CEO Joe Ianniello was still in place," he continued.
Tinker argued that Viacom's recent decision to purchase the rights to the Italian soccer Serie A and Coppa Italia complements the existing portfolio of its Paramount+ streaming service and "further differentiates" the service from those offered by Netflix and Apple Inc. (AAPL), which are focused on entertainment rather than sports.
The company also renewed its National Football League commitments at a "high, but expected, price," he said. Amazon's purchase of the exclusive rights to Thursday Night Football suggest that company "also believe[s] football is a key subscriber driver."
Tinker sees Viacom as potentially in a better position to negotiate a merger deal with Discovery Inc. (DISCA), which has also experienced heavy stock-price volatility recently but didn't conduct an equity offering at a high price (link) like Viacom did. Liberty Media Corp. Chairman John Malone, who effectively controls Discovery, has talked about the need for consolidation among traditional media companies looking for scale.
Malone "might prefer to take Apple stock in exchange for Discovery, whose non-violent programming may be attractive to the relatively family friendly programmer," Tinker said, but a potential merger with ViacomCBS"not only creates scale but enables Discovery to better monetize its programming via advertising on Pluto TV."
Discovery shares are also rallying Tuesday, up 8.5% in midday trading.
Viacom shares are up 28% over the past three months, while Discovery shares are up 51%. The S&P 500 has gained 6% in that span.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
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03-30-21 1248ETCopyright (c) 2021 Dow Jones & Company, Inc.