Viacom Stock Down 4% in September – Time to Buy VIAC Stock?

Viacom stock has dived 4% so far in September as the price action has flat-lined since the Archegos debacle.

Meanwhile, shares are flat this morning as well at $40 per share despite chatter about an upcoming restructuring of its production unit Paramount Pictures.

According to an exclusive report from the Wall Street Journal, the move would result in a separation of the movie and TV production activities, which will now function as standalone businesses.

Moreover, the company is also expected to appoint the current head of Nickelodeon, Brian Robbins, as the Chief Executive Officer of the film studio while the soon-to-be-split TV unit will be led by David Nevins.

Can this news revive the price action for Viacom stock or is the stock price poised to remain flat for the foreseeable future? In the following article, I’ll take a closer look at what is going on with the company lately to possibly answer that question.

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Viacom Stock – Technical Analysis

The price of Viacom stock started to dive on 23 March this year after the company announced that it will be selling 20 million Class B shares at $85 per share or 15% below its all-time high of $100 per share.

This move triggered a series of unexpected events including the implosion of a hedge fund called Archegos Capital that had taken a large bet on the company’s stock using a significant amount of leverage.

Back then, multiple brokerage firms including Nomura and Credit Suisse reported heavy losses amid their exposure to Archegos and its dealings with Viacom CBS stock and other issues as they were forced to dump the stock to limit their losses.

Since then, the price has apparently bottomed at around $35 and $40 per share. However, the price has not recovered most of the territory it lost since the Archegos debacle and may not fully recover ever as it is now clear that the price was, to some extent, distorted by the leveraged bets this fund took on the stock.

From a technical perspective, both the MACD and the RSI remain flat meaning that momentum for the stock is stalled and the same goes for the company’s short-term moving averages.

Meanwhile, except for some infrequent exceptions, trading volumes have stood flat as well and below the 10-day average most of the time.

Viacom Stock – Fundamental Analysis

Viacom CBS has been making some interesting moves to adapt to the rapid changes that are occurring in the industry including an accelerating cord-cutting trend. The pandemic emphasized the importance of steering the business in this direction as streaming platforms like Netflix (NFLX) and Disney+ experienced a surge in subscriptions during confinement.

For Viacom CBS, producing content for its platforms should not be a problem as the company counts on Paramount to perform that task. Meanwhile, Viacom has progressively increased the number of subscribers of its Paramount+ and Pluto streaming services.

According to a recent report from Morningstar, the stock might be undervalued at the moment as the management has been fairly conservative when forecasting the growth of its streaming subscriber base.

“Given the opportunity internationally and the relatively low guidance of 65 million-75 million subscribers by 2024, we think it’s likely that Viacom management will raise its outlook in the next two years, similar to the increase that Disney management made in December 2020”, said Neil Macker, a Senior Equity Analyst for the firm.

For Morningstar, the intrinsic value of the firm is somewhere around $61 per share resulting in a 52.5% upside potential compared to today’s price for long-term investors.

This estimation is at least $9 above the current consensus estimate of $52 per share compiled by Seeking Alpha and it reflects how markets are appraising the company’s ongoing pivot toward streaming.

For the six months ended on 30 June, Viacom’s streaming revenues landed at $1.8 billion resulting in an 80% jump compared to the same period a year ago. Moreover, streaming revenues accounted for nearly 13% of the firm’s top-line results during this first semester compared to a 10% contribution last year.

Currently, the stock is trading at only 10 times its forecasted earnings for the next twelve months while its long-term debt is standing at $19.2 billion on total assets of $55 billion including $30.8 billion in goodwill and intangibles and $5.38 billion in cash.

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