1. Diversifying away from legacy distribution
2. The rich library makes the company attractive to acquirers
3. The valuation is low, even if the business doesn't grow
Besides the operational aspects, the current market valuation is another reason for the stock price to increase. Compared with its peers, the market values Viacom at a discount from the EV/Sales and EV/EBITDA ratios perspective.
Since 2016, the revenue and the operating income have been stagnating at about $13 billion and $2.8 billion, respectively. The PE ratio, based on trailing earnings, amounts to about 7.5, which corresponds to an earnings yield of 13.3%. The company only needs to keep earnings flat to justify an attractive value proposition at the current stock price of about $29. But on a constant currency basis, the revenue and the adjusted diluted EPS actually increased by 4% and 13% during the latest reported quarter.
The balance sheet also improved. The net debt decreased by about $4.2 billion over the last 2 years to reach approximately $8.4 billion.
The threat of the declining legacy core business is real. But with such a low valuation and with the potential to take advantage of the strong content library, the possibilities for Viacom's stock price to increase are important.
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