Viacom has dodged more than the wrath of Howard Stern with its spinoff of CBS Corp. in January. CBS is suing Stern, the superstar shock jock who left the company last year for Sirius Satellite Radio, for breach of contract. But CBS has other pressing problems, some analysts say. As its six-year-old CSI franchise matures, CBS risks a ratings drop that could unseat the TV network from the top spot of the ratings. Cable, Internet, satellite radio and podcasts continue to nibble at CBS's radio and network TV audience. And the company's revenue growth is tepid.
CBS stock, recently at $24, looks cheap. It trades at just 14 times the average of analysts' 2006 earnings estimates of $1.71 per share and yields an above-average 2.6%. But Citigroup analyst Jason Bazinet still sees CBS as pricey. "We don't think the valuation is compelling enough to get too excited given all the risks," says Bazinet, who recommends that investors sell CBS stock and instead buy shares of its former parent, Viacom.
Viacom (symbol VIA.B) runs cable and entertainment businesses with better growth prospects than the mature media at CBS. Cable subscribers still want their MTV along with Comedy Central, Nickelodeon and VH1, all popular brands owned by Viacom. Viacom shares suffered from a conglomerate discount before the CBS split, says A.G. Edwards analyst Michael Kupinski.
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Since the breakup, Viacom has been aggressively buying back its shares. Bazinet estimates that the company bought close to $500 million in stock earlier this year as part of an already-authorized $3-billion buyback program, and he thinks the company could boost the amount to $5.5 billion. Stock purchases will boost earnings per share beyond the conservative guidance given by the company, he says. Bazinet also expects Viacom's film business to improve as the company consummates its marriage with movie studio DreamWorks. About a third of Viacom's revenue comes from the movie business.
Bazinet sets his target price at $49 and rates the stock a buy. Viacom, recently $40, trades at 20 times analysts' 2006 earnings estimates of $1.97 per share.
--Thomas M. Anderson
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