|Time for Change? |
Viacom's long slumber
Investors are ready to reset their clocks when it comes to Viacom ( VIA). The media conglomerate, in what is likely to be its last earnings report as a joint company, reports Tuesday as its separation proceedings move toward a long-awaited conclusion. Wall Street is eager to see the split completed so the company can have the semblance of a fresh start. The company said earlier this year it would be splitting into the new Viacom, a growth play to be led by Tom Freston, and the new CBS, a value play led by Leslie Moonves. Last week it announced that the split, which will give Viacom holders half a share of each new company, was ahead of schedule and on track for a pre-Christmas separation. To no one's surprise, Chairman Sumner Redstone -- who cited irreconcilable differences on the synergy front for the disassembly play -- will keep his hands firmly on the wheel as chairman at both companies. Redstone's Moses-like plan for the parting, intended as a way to clarify the investment thesis for Wall Street, hasn't done much to help the stock. Along with rivals like Time Warner ( TWX) and News Corp. ( NWS), Viacom's stock has been spinning its wheels for some time. Viacom has fallen from an August high of near $36 to its recent level just below $31. That said, the company's units continue to perform well. Analysts will be looking for earnings of 45 cents per share on $5.81 billion in revenue for the third quarter. Most analysts agree that the pending split should yield hidden treasure. "We continue to recommend Viacom as we believe the split of the company will unlock value in the shares," says Prudential's Katherine Styponias. Prudential rates Viacom overweight with a $45 price target. At CBS, the ratings picture couldn't be much better. While Disney's ( DIS) ABC has Desperate Housewives and Lost, CBS remains the No. 1 network in prime-time households and total viewers, according to Nielsen Media Research. Year to date, it trails ABC by just 0.2 of a ratings point in the all-powerful 18-49 demographic bracket. At its radio and outdoor units, Prudential sees more modest single-digit growth of 1% and 3%, respectively.
On the cable side, Styponias says, "Viacom's portfolio of cable networks should continue to post double-digit revenue increases in the quarter." She forecasts cable revenue of $1.61 billion, up 12% year over year. Paramount has had a resurgent summer at the box office, thanks to films like War of the Worlds and The Longest Yard. Styponias says Prudential projects entertainment revenue of $660 million, up 20%, along with a doubling in year-over-year DVD revenue. New President Gail Berman hopes to keep that ball rolling at the division. According to sources, the company is also still planning on offloading its Simon & Schuster publishing division and its Paramount Theme Parks. On Friday, shares of Viacom closed down 10 cents to $30.82.