Viacom (VIAB) Stock Plummets as Time Warner Outlook Stokes Industry Concerns

Viacom (VIAB) stock is diving in early afternoon trading on Wednesday, as Time Warner's (TWX) weak 2016 forecast fuels concern about the traditional TV business.
By Rachel Graf ,

NEW YORK (TheStreet) -- Viacom (VIAB) - Get Report stock is decreasing by 8.07% to $47.15 in early afternoon trading on Wednesday, as many stocks within the media industry decline after Time Warner (TWX) lowered its fiscal 2016 earnings outlook.

During its 2015 third quarter earnings conference call this morning, Time Warner lowered its forecast for fiscal 2016 adjusted earnings to about $5.25 per share, down from its earlier forecast of "close to $6," Reuters reports. Analysts were estimating for earnings of $5.60 per share.

The media and entertainment company cited weak ratings at its domestic networks and a sharper-than-expected drop in subscribers, according to the Wall Street Journal.

The announcement is fueling concern that the traditional cable TV business is lagging as cord-cutters turn to streaming services such as Netflix (NFLX) and Amazon (AMZN) instead.

Shares of media companies Disney (DIS), Discovery Communication (DISCA) and AMC Networks (AMCX) are falling this afternoon as well. 

Separately, TheStreet Ratings team rates VIACOM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate VIACOM INC (VIAB) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VIACOM INC has improved earnings per share by 5.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, VIACOM INC increased its bottom line by earning $5.45 versus $4.90 in the prior year. This year, the market expects an improvement in earnings ($10.92 versus $5.45).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, VIACOM INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • VIAB, with its decline in revenue, underperformed when compared the industry average of 5.6%. Since the same quarter one year prior, revenues fell by 10.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The debt-to-equity ratio is very high at 4.56 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, VIAB maintains a poor quick ratio of 0.82, which illustrates the inability to avoid short-term cash problems.
  • Net operating cash flow has decreased to $400.00 million or 27.27% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: VIAB

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

Loading ...