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Viacom's A Bargain: Analyst

11/28/2008 7:00 PM Eastern

Pali Research media analyst Rich Greenfield opined last week that Viacom stock, down 70% this year on advertising fears and the whims of its mercurial chairman Sumner Redstone, should be trading higher, even in the middle of one of the worst recessions in recent memory.

Viacom has been pummeled this year on poor performance (its advertising growth has lagged its peers) and the sell-off of $283 million of Viacom and CBS stock by National Amusements (Redstone's theater chain) to meet loan covenants. It was trading at $15.78 on Nov. 24.

In a research report last week Greenfield, who has been critical of Redstone and Viacom management, wrote that even his most “draconian estimates” for next year — earnings per share of $2 (20 cents below consensus) and free-cash-flow per share of $2.27 — are only 33% lower than his estimates coming into 2008.

Greenfield noted that despite lowered expectations, Viacom stock is trading at about 6.6 times 2009 expected earnings.

As a result, Greenfield slapped a “buy” rating on the stock and a $25 price target.

“At 7 [times] trough earnings, who cares about Redstone?” Greenfield asked rhetorically.

He noted that with 40% of Viacom's revenue coming from locked-in subscriber fees, with strong brands such as Nickelodeon and with no credit given in earnings estimates to the Paramount movie studio or the wildly successful Rockband video game, Viacom shares are “too compelling to ignore.”

September