Viacom Fans Search for a Catalyst

Viacom (VIAB) fans are hoping that clearer signs of an advertising recovery will spur the battered stock.

Slated to report first-quarter results on Thursday morning, Viacom faces easy comparisons against the year-ago quarter. Back then, the onset of the Iraq war was a drag on the ad sales that comprise nearly half of the multimedia conglomerate's revenue.

But the company needs to show more juice than that, it appears, to get investors jazzed about the stock.

Viacom's shares fell 95 cents Tuesday to close at $39.90. Shares in the stock have ranged between $36.35 and $49.75 over the past year.

Going into the call, analysts surveyed by Thomson First Call expect revenue of $6.52 billion, operating income before depreciation and amortization of $1.34 billion, operating income of $1.08 billion, and earnings per share of 31 cents.

Morgan Stanley's Rich Bilotti, who has an equal-weight rating on the stock and a $46 price target, says the stock could outperform the entertainment industry and the overall market over the next three to six months as signs of a recovery in local advertising materialize.

But Bilotti says he anticipates a "significant deceleration" in Viacom's growth beyond 2004. (Morgan Stanley has received investment banking compensation from Viacom.)

In a note written earlier this month, Banc of America's Douglas Shapiro, who has a buy rating on the stock, gave several reasons he believed the stock would rise, starting with signs that the local ad market is improving. With the exception of radio, Shapiro pointed out, Viacom's key businesses -- that is, cable networks and TV -- are outperforming, expectations on Wall Street are low, and heavy institutional selling of the stock appears to have abated. Shapiro has a $49 price target on the stock; his firm hasn't any Viacom-related disclosures.

Looking ahead, Viacom has forecast revenue growth in the range of 5% to 7%, operating income up in the range of 12% to 14%, and earnings per share up between 13% to 15%. Those growth numbers ignore a $1.3 billion charge last year related to Blockbuster ( BBI), which the company hopes to spin off later this year. (Bilotti, for one, notes that the company will have to dispose of Blockbuster by the end of the year to meet the percentage growth targets.)

Translating those forecasts into their own dollars-and-cents estimates, analysts currently expect $28.23 billion in revenue for 2004, $6.6 billion of operating income before depreciation and amortization, $5.55 billion in operating income, and earnings per share of $1.63.

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