ViacomCBS Stock Slides Below Pre-Covid Level – What’s Next?


ViacomCBS stock (NASDAQ: VIAC), which is currently trading at $33 per share, has gone below its level at the beginning of 2020. VIAC stock traded at $36 per share in February 2020, just before the pandemic, and is still 7% below that level, as well. The stock saw a significant decline in 2021 after the initial euphoria over the company’s transformation to streaming. When the stock went above $100, the management priced its additional issue of shares at a 15% discount, which led to the stock declining. Additionally, the equity swap fiasco at Archegos Capital Management led to the hedge fund selling 30 million shares of VIAC stock in an apparent move to liquidate the fund, thus exacerbating the fall in VIAC’s stock price. To add to this, the rising spread of Omicron and re-imposition of curfews is likely to affect the company’s traditional business segments like studio entertainment. In the absence of stringent lockdowns and faster administering of vaccines and booster doses, VIAC stock has a potential upside of over 40%. The high transmissibility of the Omicron variant remains a risk to this upside. You can see ViacomCBS upside post Covid in our dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 114% from the lows seen on Mar 23, 2020, with the Fed’s multi-billion dollar stimulus package keeping the economy afloat during the prolonged lockdown and the vaccination drive allowing things to gradually return to near-normal conditions despite several waves of Covid infections.
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In contrast, here’s how ViacomCBS and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

ViacomCBS and S&P 500 Performance During 2007-08 Crisis

We see VIAC stock declined from levels of around $31 in September 2007 (pre-crisis peak) to levels of a little over $4 in March 2009 (as the markets bottomed out), implying VIAC stock lost 86% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of a little over $14 in early 2010, rising by 229% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

ViacomCBS Fundamentals Over Recent Years

ViacomCBS revenue increased from $26.5 billion in 2017 to $27 billion in 2019. However, revenue declined to $25.3 billion in 2020 mainly because of its studio business being severely affected during the pandemic in 2020. However, with lockdowns being lifted gradually, LTM revenues increased to $27.5 billion. EPS increased from $3.63 in 2017 to $5.38 in 2019, but it fell to $3.93 during the pandemic year of 2020. Last twelve months EPS has now recovered to $5.16.

Does ViacomCBS Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

VIAC’s total debt increased from $9.5 billion in 2017 to $19.7 billion currently, while its total cash increased from around $0.3 billion to $3 billion over the same period. The company generated almost $1.2 billion in cash from its operations in the last twelve months, which puts it in a reasonably comfortable liquidity position to deal with the current crisis.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-September 2020: Recovery of demand, with the phased lifting of lockdowns – no panic anymore with number of cases appearing to have plateaued
  • October 2020-February 2021: Unprecedented surge in Covid cases forcing a fresh round of lockdowns across the nation
  • Since March 2021: Ongoing vaccination drive and gradual re-openings drive an improvement in demand – buoying market sentiment

Despite the recent rise in the number of new Covid-19 cases in the U.S., we expect an improvement in demand to buoy market expectations. As investors focus their attention on expected 2021 results, we believe ViacomCBS stock has the potential for strong gains once fears surrounding the Covid outbreak are put to rest.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

 Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 VIAC Return 10% 10% -48%
 S&P 500 Return 0% 0% 114%
 Trefis MS Portfolio Return -2% -2% 285%

[1] Month-to-date and year-to-date as of 1/5/2022
[2] Cumulative total returns since the end of 2016

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