Citi Spooked By Viacom, Downgrades Stock Just 6 Weeks After Upgrade

Viacom, Inc. VIAB has announced that it might sell a part of its stake in Paramount, while the consensus forecasts for 2016 and 2017 have been revised downward.

Citi’s Jason B. Bazinet downgraded the rating on the company from Buy to Neutral, while lowering the price target from $46 to $44.

Paramount Stake Sale

Bazinet mentioned that press reports suggest that the sale of a minority state in Paramount could be worth $4-$6 billion, which was disappointing on two accounts.

“First, we would rather see Viacom sell 100% of Paramount. Second, the valuations in press reports are below the $7 billion EV we used previously,” the analyst explained.

Consensus Forecasts Down

The consensus EPS expectation for 2016 has been lowered from $5.40 to $5.19, most of which Bazinet believes was driven by the lackluster results at Paramount.

In fact, the analyst believes that the consensus expectations could decline again due to two issues, “1) Paramount has continued to perform poorly at the box office, leading to tepid long-term home entertainment and licensing growth and 2) Affiliate fees are likely to continue coming under pressure as further pay M&A takes hold.”

Bazinet expects U.S. affiliate fee growth of 3 percent in 2016, 5 percent in 2017 and only 2 percent in 2018.