Until March of this year, it seemed that media conglomerate ViacomCBS (NASDAQ:VIAC) was doing just fine. A year after the shock of the Covid-19 pandemic, VIAC stock had recovered nicely.
Then an unexpected event happened. It was all over the financial headlines when Archegos Capital unwound its massively leveraged position in ViacomCBS.
Clearly, Archegos Capital was in over its head. This incident wasn’t ViacomCBS’s fault, but VIAC stock holders nevertheless suffered from the collateral damage.
Despite the share-price collapse, ViacomCBS remains a thriving business with a growing suite of entertainment brands. A push into the streaming space — plus an ambitious price target from a prominent analyst — suggests that it’s time for investors to give this company another chance.
VIAC Stock at a Glance
Perhaps the Archegos Capital incident could be viewed as a pin that popped a bubble.
VIAC stock started off 2021 at $36 and change, but then shot up to a 52-week high of $100.42 by March 22. This price move was really too much, too fast.
Some folks might say that Reddit users were involved in that run-up. This is a possibility, but in any case, the steep stock-price rally wasn’t meant to last.
Due to the Archegos incident, the VIAC stock price was cut in half in a matter of days. In April the stock fell down to the $40 area, and then it mostly went sideways after that.
Even in early September, the ViacomCBS share price was still $41 and change.
But as they say, the longer the base, the higher in space. In other words, a lengthy consolidation (sideways) period could be followed by a swift move to the upside.
A Compelling Value
If anything, the drawdown in VIAC stock should be viewed as an opportunity for prospective investors, not as a problem.
In early September, ViacomCBS’s trailing 12-month price-to-earnings ratio is an ultra-low 7.81x. This indicates a compelling value proposition in a time when many stocks are overpriced and real bargains aren’t easy to find.
Not only should value seekers pay attention to VIAC stock now, but income-focused investors ought to consider a position as well.
That’s because the stock pays a forward annual dividend yield of 2.31%. So, the stockholders can collect the distributions while they’re waiting for the ViacomCBS to recover.
But of course, VIAC stock wouldn’t present a strong value proposition unless the company is profitable.
No worries there, as ViacomCBS reported second-quarter 2021 earnings of $1.50 per share, up 205% year-over-year. That figure easily beat Wall Street analysts’ average estimate of 98 cents per share.
ViacomCBS’s excellent quarterly earnings performance was due, no doubt, to the ongoing success of legacy entertainment brands like CBS, Comedy Central, MTV and Nickelodeon.
Yet, there’s another contributing factor at work here. Specifically, ViacomCBS is making strides in its streaming segment.
The company added 6.5 million streaming subscribers during 2021’s second quarter, beating the Wall Street analyst consensus estimate of 4.1 million. Moreover, ViacomCBS ended the quarter with more than 42 million streaming subscribers globally on Paramount+ and Showtime.
Wells Fargo analyst Steven Cahall certainly took note of ViacomCBS’s progress in this area.
“VIAC’s streaming efforts are bearing fruit and have impressed us, so we move from historical bears to constructive bulls,” the big-bank analyst commented.
Furthermore, “A stronger balance sheet and unique mix of content (e.g., sports, reality, film, originals), combined with a strong start to Paramount+” underlie Wells Fargo’s “confidence in the story.”
With that analysis, Cahall issued an “overweight” rating (similar to a “buy” rating) on VIAC stock.
On top of that, the Wells Fargo analyst offered a strongly bullish $60 price target on the stock.
Cahall’s optimistic assessment should encourage potential investors to consider a position in ViacomCBS.
It’s evident that the company is moving aggressively into the streaming space with Paramount+ and Showtime.
At the same time, VIAC stock presents a favorable reward-to-risk profile based on its ultra-low valuation.
Plus, while you’re waiting for a share-price recovery, you can collect some generous dividend payouts along the way.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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