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The Ratings Game: Viacom’s streaming momentum could make it more attractive to suitors, analyst says in upgrade

ViacomCBS Inc. is making progress with its streaming goals, which could help the company become a more attractive takeover target, according to an analyst.

Wells Fargo’s Steven Cahall upgraded Viacom’s stock
VIAC,
+1.32%

to overweight from equal weight Wednesday, amid optimism about the company’s streaming momentum, upcoming content slate, and attractiveness in a rapidly consolidating media landscape. The shares are up 2.8% in premarket trading.

Cahall said that he and his team are now “constructive bulls” on Viacom’s stock given that the company is gaining traction with its Paramount+ streaming efforts and looks poised to continue adding subscribers thanks to a strong second-half programming lineup, in addition to the return of NFL and SEC football.

He boosted his price target to $60 from $45.

“As historical bears, part of the incrementality of this upgrade is a recognition on our part that management is doing a fine job, including driving streaming [key performance indicators], shoring up the balance sheet with well-timed divestitures, pulling more content back in and investing for the future,” he wrote. “Not only are these all the right moves, but the results are positioning VIAC more favorably in streaming despite intense competition.”

Viacom could also find itself an acquisition target as the media industry consolidates. Discovery Inc.
DISCA,
+0.95%

is merging with AT&T Inc.’s
T,
-0.04%

WarnerMedia, and Amazon.com Inc.
AMZN,
-1.73%

is aiming to buy the MGM movie studio. That backdrop could make Viacom attractive to media parties looking to bulk up their businesses.

“We see content capabilities like VIAC’s studios as among the rarest gems,” Cahall wrote.

Previously, he worried that Viacom would have to find a suitor “before the competitive pressures created downside to valuation,” but now he thinks that the company offers a better package in that it has a nice streaming story along with its established studio business.

“We think crystallization of further streaming value in the stock may be the controlling shareholder’s final act before looking to transact, and the timing is right,” he continued.

Shares have gained 4.8% so far this year as the S&P 500
SPX,
-0.71%

has risen 18.4%.

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