Analyst Disputes Viacom Turnaround Theory

It has been popular on Wall Street for analysts to recommend buying Viacom stock based on the idea that while its ratings have plunged and ad revenues are falling, you can bet it will rebound someday. Viacom has also been propping up the value of its stock with an increased dividend and big share buybacks.

In a new report, analyst Todd Juenger of Sanford C. Bernstein & Co. tries to debunk that theory, saying that Viacom’s stock price is already too high relative to other media companies that have been performing better.

“We attribute Viacom’s poor ratings primarily to a lack of institutional creative capability, perennial under-investment, excessive reliance on too few hit programs and liberal online distribution. Hence, we believe place low probability on the likelihood of a ratings turnaround,” Juenger says. “We don’t believe Viacom’s aggressive cash return plan creates value, in fact we’d rather see them invest behind their brands.”

Juenger says that he could understand buying Viacom when the stock was below $50 a share, but now, with the stock at about $57, he asks, “why would you pay a premium for a company with consensus EBITDA growth of only 4% on the chance that Viacom ratings might actually someday stop declining, when premium franchises like Disney or News Corp. can be bought for less?”