Viacom Should Take Core Business Private, Bernstein's Juenger Says

Bernstein’s Todd Juenger maintained an Underperform rating on Viacom, Inc. VIAB, with a price target of $30.

Following, the company’s quarterly results report, Juenger expects the estimates to be significantly revised down for 2016.

“We believe regardless of the operating plan, on its own merits as a going concern Viacom's cash flow will perpetually decrease. De-levering pressures will consume free cash, and distribution will eventually be lost – perpetuating and accelerating the downward spiral,” Juenger stated.

According to the Deutsche Bank report, Viacom needs to do something to reshape its assets, although the public markets are unlikely to be the best way for shareholder to reap gains from the cash flow/value that remains.

“Perhaps the better course of action would be to: auction the sale-able assets (especially those that have asset value but little/no cash flow), and take the remaining core assets private (which includes the flagship networks of Nickelodeon, MTV, and Comedy),” the report said.

This way, private equity holders would be able to “harvest” the cash flow run-off directly, while also being able to take the necessary radical restructuring measures away from public scrutiny to try and create an entity that would survive.

“The bad news, however, is when we lay out our itemized list of sale-able assets and estimated liquidation values ($8.5bn), we believe the private equity value of the remaining assets (~$12bn) is well below the public market EV ($18bn),” Juenger noted.

The worse news is that it seems unlikely that the board or management would alter the status quo.