NEW YORK (Real Money) -- Viacom Class B shares (VIAB) are attractive on a longer-term basis as this is a strong franchise at a great price. Since we recommended the company in late March, the stock has moved lower.
The biggest force driving Viacom's shares lower, along with the rest of the media industry, is the heightened fears of consumers using alternative distribution technologies to view entertainment programs. Netflix (NFLX), Amazon (AMZN) Prime, Hulu and Google's (GOOGL) YouTube in particular have seen record viewing times while the number of cable television subscribers has stalled.
Investors would be wise to use this weakness to bring VIAB up to a full position. Since our March recommendation, there have been a number of company-specific developments. Most of them have been good, although one was a short-term negative.
One of the positives was that Viacom announced a meaningful restructuring program in early April to refocus on new growth areas while increasing overall company efficiency. Viacom wrote down several poorly performing programs while outlining a restructuring plan that would produce an annual savings of $350 million beginning in the second half of 2015. Analysts project that these savings will boost operating income by 4% in the coming year while earnings per share will rise by 8%.
In addition to these projected lower future costs, Viacom also reported solid first-quarter results. EPS came in at $1.16 vs. $1.06 for the estimates. The better-than-expected results were driven by positive affiliate fees and international revenue growth, combined with better-than-expected cost controls. While negative, advertising revenues were better than expected.