Viacom Downgraded At Deutsche Bank; Valuations May Be Too High

Viacom, Inc. VIAB shares have appreciated 32.2 percent from $38.15 on August 24.

Deutsche Bank’s Bryan Kraft has downgraded the rating on the company from Buy to Hold, while maintaining a price target of $56.

The downgrade follows the recent surge in the share price, although the stock multiples are still at the low end of the range for the overall sector.

Deutsche Bank analyst, Bryan Kraft, believes the “general entertainment non-sports/non-live event advertising has been in decline for the industry, and this trend will continue, while Viacom lacks sports to offset the impact.”

Kraft estimates decline in domestic advertising revenue of 4 percent in F2016, moderating to a decline of 2 percent by 2019.

Related Link: Viacom Volatile After Mixed Q3 Report

Declines On The Horizon

“We think Viacom is a leader in terms of its data-driven and cross platform advertising capabilities, and we think the company is taking the right steps to reduce ad loads,” Kraft stated.

However, viewership declines are expected to continue, offset to some extent by improvements in measurement and pricing. Growth is expected to slow on the affiliate side, “as renewal step-ups begin to look more like mid-contract escalators and escalators also moderate.”

Domestic affiliate growth is expected at 5.6 percent in 2016, moderating to 3 percent by 2020. This would lead to revenue growth rate of 1-2 percent, with flat to 2 percent EPS growth post-2016.
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