Viacom Delivers Great Q4, But Are the Shares Attractive?
Posted on February 11th, 2010
Viacom, Inc. (VIA) recorded a significant increase in per-share profit in the fourth quarter. On an adjusted basis, earnings from continuing businesses increased over 40% to $1.09 per share. The call on Wall Street was for only 88 cents per share.
Sure, that’s a wide margin for the beat, but in many ways, the Viacom story is a precarious one to buy. There are two major divisions in this company: media networks and movies. Operating income at the former went up 3% in Q4, while profit at the latter increased over 250%. Viacom had a strong theatrical film slate in 2009, and it is reaping the financial windfall from that slate in the ancillary markets.
Unfortunately, that could be cause for concern. As I’ve mentioned in the recent past, what happens when the studio isn’t so hot? Granted, it’s understood when buying a media business that acceptance of content by an audience ebbs and flows based on fickle taste, but this means you’ve got to take a careful look at the rest of the portfolio in possession by the entity under consideration to determine if a slowdown in one segment can be reasonably offset by a rise in other parts of the company.
Well, we run into an issue when we ask this question. It centers around the MTV Networks (MTV, by the way, is changing its image). Simply put, management hasn’t successfully positioned its collection of cable properties for future growth (plus, there’s the lackluster prospects for the Rock Band video game to keep in mind). Viacom has some good brands on cable, and there’s ample future potential to be extracted from the programming, but the execs who run the channels have to step up their game and figure out how to contribute more value to the overall enterprise.
I’d like to see Viacom drop significantly below $30 per share before considering investing in the stock. Hey, if I could have a guarantee that the movie division would continue to do all the heavy lifting, I’d say the shares were a buy. We all know better, though. Whether it’s a The Walt Disney Company (DIS) or a Time Warner, Inc. (TWX), celluloid popularity is oftentimes a fleeting thing.
Disclosure: I own Disney; positions can change without notice.
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