ViacomCBS Cut to Neutral at Credit Suisse on Cash-Flow Revision

ViacomCBS shares were cut to neutral from buy at Credit Suisse, which cites the media company's second downward revision of cash flow since the CBS merger was announced.
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ViacomCBS  (VIAC)  shares fell after Credit Suisse analysts cut their rating on the media company’s stock to neutral from outperform and slashed their target price to $37 from $52.

The analysts, led by Douglas Mitchelson, cited difficulties the New York company faces in the wake of CBS’s acquisition of Viacom in December.

They wrote in a report that they cut the rating because of the “second meaningful downward free-cash-flow revision” since the merger was announced in August.

“ViacomCBS’s new, less cash-generative profile reduces its ability to repurchase shares,"  Mitchelson said. Buybacks "would have helped offset long-term terminal value concerns," he said. The new profile "makes the company’s price-to-free-cash-flow valuation less compelling relative to its inherent risks.” 

Viacom CBS shares might be oversold in the short term and trade at a deep discount to asset value, he wrote. And CEO Robert Bakish may be able to “drive enhanced merger synergies.” 

But “we now see only 8% upside potential to our new $37 target price for 2020,” the analysts said.

The analysts lowered their free-cash-flow estimates by $500 million to $600 million for each of the next three years. They took that step in light of “management’s strategy to invest in content, … defend its traditional networks and ramp third-party sales.

The report also cited sliding audience trends and cord-cutting from traditional pay-TV. 

“We cut our earnings-per-share estimates by $0.18 for 2019 (to $3.64), by $0.35 for 2020 (to $5.91), and by $0.40 for 2021 (to $6.69),” the report said.

At last check, ViacomCBS shares traded at $33.56, down 1.7%. The stock is down 36% since it touched a 52-week high near $54 in mid-July. And it's down 19% in 2019 through Friday's close.

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