Shares of Viacom (NASDAQ:VIAB, NASDAQ:VIA) were up a modest 6% Thursday after the company reported a third-quarter earnings beat. That has got investors wondering if VIAB stock can continue higher and possibly take out its highs near $35.50. That would mark a rally of almost 20%, even after Thursday’s jump.
Viacom Earnings
Earnings per share of $1.18 came in 11 cents ahead of analysts’ expectations. However, revenue of just $3.24 billion came up over $20 million short of estimates and sank 3.6% year-over-year (YoY).
President and CEO Bob Bakish said,
“Viacom produced another quarter of strong progress, with clear evidence that our turnaround is delivering results and that our evolution into a truly global, multiplatform, brand- and IP-driven entertainment company is well underway. Paramount Pictures is revitalized, with outstanding box office performance and growing television production revenues driving substantial gains in profitability.”
While revenues sank YoY, earnings increased about 1%. Worth noting is that operating income improved by just 1% to $752 million as well, while adjusting operating earnings fell 5%.
Viacom’s largest segment is media networks, which saw its revenue decline 2% YoY to $2.5 billion. Advertising revenues both internationally and domestically sank, falling 4% and 3%, respectively.
MTV is having its best YoY ratings increase streak (four quarters) in seven years. Combined with VH1, the two channels hold a whopping nine of the 10 top unscripted cable series. Comedy Central is gaining traction, while Nickelodeon is looking better too. Paramount Network’s Yellowstone “is the most watched scripted cable series of 2018 after The Walking Dead, with an average audience of approximately 4.4 million viewers,” according to the company.
Filmed entertainment revenue fell 9% YoY to $772 million. Despite a 20% increase in domestic sales to $464 million, international revenue declined 33% to $308 million.
Valuing VIAB Stock
While earnings are moving the stock right now, the potential merger with CBS (NYSE:CBS) is the real focus. As the rest of the media industry continues to consolidate, it only makes sense for Viacom — given the momentum it has cable content — to find a home with a larger player.
Disney (NYSE:DIS) and Twenty-First Century Fox (NASDAQ:FOX, NASDAQ:FOXA), AT&T (NYSE:T) and Time Warner, and potentially Comcast (NASDAQ:CMCSA) and Sky are just a few recent names to come to mind. With its $12.6 billion market cap, VIAB stock certainly isn’t off limits.
The market cap isn’t the only reason VIAB stock could be in play — its valuation is another. Shares trade at less than 7 times this year’s earnings, which are set to grow 7.7% from 2017. Further, earnings are set to grow another 8% in 2019.
While current estimates call for a 2.8% decline in sales this year, analysts expect a 3.4% rebound in 2019. Although sales growth is pretty stagnant from 2017 to 2019, it’s okay to overlook it given the valuation. Not to mention the company’s high-single-digit earnings growth.
Oh yeah, throw in the 2.8% dividend yield and it’s a lot easier to overlook Viacom’s sluggish revenue growth.
Trading VIAB Stock
Click to Enlarge
Like its earnings report, VIAB stock is good, but not necessarily great. There has been short-term resistance around $30.50 over the last few months. If Viacom can hold onto its early gains on Friday, it should push above this mark.
More positive though was the stock’s rally off the 50-day and through both the 100-day and 200-day moving averages. Now above all three major moving averages, VIAB stock has the right kind of mojo that’s needed to retest its highs.
$32 could be an obstacle, and if short-term bulls recently got long, that would be one spot to book some profits. Above this mark and the $34’s are in target. If it can get through there, $35 and its 52-week highs at $35.55 are in the cards.
Can it get there? It might take some time, but if it can it’s worth investors’ time. While earnings weren’t stellar, they weren’t that bad. Combined with a low valuation and solid yield, and VIAB stock is one to watch. Particularly if it pulls back into moving average support.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long T.
