Viacom Fans Eagerly Eye the Future

Viacom's (VIA.B) fans are hoping that Blockbuster (BBI) is the last stumbling block to the stock's recovery.

Viacom's impending deal to unload its Blockbuster stock -- which follows a parade of bad news about the radio business and the departure of President Mel Karmazin -- could be the catalyst that will spark a rise in Viacom's stock, fans say.

Though initially dilutive, the Blockbuster spinout, according to this scenario, could help end the slide in Viacom's stock. The shares, which surpassed $70 in 2000, have lost more than 20% over the past year and closed at $37.03 on Friday.

If Viacom successfully completes the transaction, writes CIBC World Markets analyst Michael Gallant, investors will return to Viacom stock. He cites his belief that the company will buy back as much as $5 billion worth of stock. "Just as important," he writes, "we believe all the bad news of the past nine months will be perceived to be on the table."

Gallant has a sector outperformer rating on Viacom and a 12-18 month price target of $50 on the stock; his firm hasn't done any recent banking for the company.

Sitting on Hands

His optimistic view is shared by a Viacom shareholder, who says the stock has been hobbled over the past few months by investors' waiting around to see if Viacom would follow through on its announced plan to spin off the low-growth Blockbuster business. That filing arrived Friday afternoon, when Viacom and Blockbuster filed initial terms of the deal at the Securities and Exchange Commission, and Blockbuster said it would make a $5-per-share special payout to stockholders.

"The filing itself is the catalyst," says the buy-sider, speaking on condition of anonymity.

As the buy-sider sees it, the Blockbuster deal is one of several hurdles that have dragged Viacom down over the past year.