ViacomCBS’ Stock Doubles In 2 Months; Is There Still Room For Growth?

May 27th, 2020 by Trefis Team

ViacomCBS’ stock (NASDAQ: VIAC) has seen plenty of volatility in 2020 so far. The stock crashed 74% from $42 at the beginning of the year to $11 as on 23rd March 2020 following the outbreak of coronavirus. But with the US government announcing a string of measures to keep businesses afloat, market sentiment improved over recent weeks, leading to ViacomCBS’ stock doubling in the last 2 months to reach $22 per share as on 27th May 2020, just shy of the Trefis price estimate of $23 per share for VIAC’s stock based on ViacomCBS valuation. Our price estimate takes into account the latest earnings.

Company Overview and General Reference

  • In addition to offering streaming services and digital video products, ViacomCBS provides production, distribution, and advertising solutions. Portfolio includes CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, CBS All Access, Pluto TV, and Simon & Schuster, among others.
  • The company reported sales of $6.67 billion in Q1 2020, in line with analysts’ expectations. But the company beat market expectations on earnings by posting an adjusted net profit of $1.13 per share, compared to a projection of $0.94 per share. In light of the current pandemic, the management announced liquidity enhancing and cost reduction methods.
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Company Revenues

ViacomCBS reported $27.8 billion in total revenues in FY2019. This includes 4 operating segments-

  • Cable Networks: $11.9 billion (43% of total revenues). Subscription cable networks Showtime, The Movie Channel and Flix, Showtime streaming; Nickelodeon, MTV, BET, Comedy Central, Paramount Network,the international extensions of these brands, Network 10®, Channel 5® and Telefe®; and Pluto TV
  • TV Entertainment: $12.4 billion (45% of total revenues). Consists of the CBS Television Network, CBS Television Studios, CBS Television Distribution, CBS Interactive, CBS Sports Network, CBS Television Stations and CBS-branded streaming services CBS All Access and CBSN
  • Filmed Entertainment: $3 billion (11% of total revenues). Develops, produces, finances, acquires and distributes films, television programming and other entertainment content through Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television Studios
  • Publishing: $0.8 billion (3% of total revenues). Publishes and distributes Simon & Schuster consumer books

Corporate/Elimination constitute -2% of total revenue.

For 2020 we expect total revenue to decline to $26.5 billion, mainly due to a sharp fall in filmed entertainment revenues. We discuss ViacomCBS’ revenues by operating segments over the years along with forecast in detail in a separate dashboard along with comparison with peers Disney and Comcast.

Net Income and EPS

  • Net income margin has increased from 8.8% in 2017 to 11.9% in 2019 led by strong revenue growth, lower effective tax rate, decline in interest cost and absence of pension settlement charges.
  • However, despite the company considering layoffs as a method of cost containment, we believe that the revenue drop will be greater, which could lead to margins dropping from 11.9% in 2019 to 9% in 2020.
  • With share count remaining almost stable at around 617 million, the company’s EPS is expected to see a sharp drop from $5.36/share in 2019 to $3.87/share in 2020.

Movement in P/E Multiple

  • The P/E multiple dropped from 7.7x at the end of 2019 to 5.68x currently, mainly due to adverse impact of the current pandemic. Due to lockdown in almost all major cities over the globe, major movie releases and shooting has been halted, which is not good news for a traditional media giant like ViacomCBS. The company’s key revenue sources – movie theaters, film openings, and live sports events from the CBS network – have come to a virtual halt due to the pandemic. Additionally, the cord-cutting has led to a drop in TV advertising demand, affecting revenue projections.
  • Trefis values ViacomCBS at a P/E multiple of 6x, which is slightly higher than its current multiple. We believe that the company’s increased focus on streaming and willingness to tinker with its operating model should help VIAC command a higher P/E.
  • ViacomCBS offers 4 unique streaming services (Pluto TV, BET Plus, Showtime Streaming, CBS All Access) for different audiences, as opposed to Netflix’s same offering at different prices. The company is focused on enhancing its streaming services to take on segment giants like Netflix, Disney, and Amazon. The company’s willingness to invest more into streaming (in line with industry trend) and availability of resources to do so – $589 million cash balance and $3.5 billion unused credit lines – bodes well for the company’s future growth.

Thus, as per ViacomCBS valuation (which also compares P/E multiple for VIAC’s peers) by Trefis, we have a fair price estimate of $23 per share for VIAC’s stock, valuing the company at a P/E multiple of 6x.

Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a more complete macro picture. The complete set of coronavirus impact and timing analyses is available here.

 

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