Analyst Drops Viacom Stock to ‘Underperform’

Outlook for affiliate fee growth turns negative
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Analyst Marci Ryvicker of Wells Fargo downgraded Viacom stock to “underperform” from “market perform.”

Ryvicker said she significantly cut her earnings estimates for Viacom ahead of the upcoming release of quarterly results. Domestic affiliate fees are expected to decline 10%, compared with a 2% increase in earlier forecasts, and she sees a $40 million operating loss at Paramount, compared with operating income of $39 million. She sees Viacom’s domestic ad revenue down 4% in the quarter.

She notes that while Viacom’s shares have climbed lately on the boardroom drama playing out between controlling shareholder Sumner Redstone and CEO Philippe Dauman, which could lead to a management change at the company, “we don’t see how anyone can come in and successfully turn this company around over the next 12 months. It has fallen too far too fast, in our opinion, especially in cable nets (which have long-term contracts).”

Viacom last month said its earnings for the June quarter would be significantly lower than a year ago and analysts’ forecasts. The company said its latest Teenage Mutant Ninja Turtle movie underperformed and that ad sales would be down. It also said that a significant SVOD deal was delayed, which would lower affiliate fees.

Among the other media companies, Ryvicker said that CBS and Time Warner appeared to be doing fine and she lowered 21st Century Fox’s earnings estimate slightly because her earlier view of network affiliate fee and advertising growth were too aggressive. She also said that she lowered her outlook for Fox in 2017 because of foreign exchange and incremental investments in National Geographic.

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