UPDATED with today’s stock movement. B. Riley is the latest Wall Street institution to upgrade Viacom stock, with analyst Barton Crockett citing “momentum for media consolidation” that puts Viacom and CBS “next on deck” for M&A.
Crockett overnight raised his rating on Viacom to buy from neutral and upped his 12-month price target to $39 from $34. He also reaffirmed his buy rating on CBS and increased that price target to $63 from $61.
Viacom shares closed Tuesday at $32.48, but jumped nearly 4% in early trading today, to $33.65. They have gained 12% in the month of September, though they have experienced volatility and only small gains in 2018 to date.
“With the ugliest corporate governance problems now behind them, we see Viacom and CBS as next on deck with a reunion of the two sometime in the next two years or less, as the most probable outcome,” Crockett wrote in a research note. He said the combination would create $1.3 billion in cost synergies, while increasing scale and enabling the larger entity to “combat secular pressures.”
The two companies remain controlled by National Amusements chief Shari Redstone. They have been enmeshed in high drama in recent months, with merger talks early this year curdling into legal animus, which was followed by the stunning ouster of CBS chieftain Les Moonves amid sexual misconduct allegations.
Yesterday’s appointment of Richard Parsons as interim chairman of CBS, as Crockett sees it, is “elevating a voice friendly to Shari Redstone and consolidation. So, in time (after perhaps a few quarters spent gaining sea legs by new CBS directors, Parsons, and acting CEO Joseph Ianniello), we suspect that consolidation will again be front and center and, if CBS and Viacom can’t find better suitors outside of the family, we believe they will look to reunite.”
Last week, Macquarie upgraded Viacom to outperform from neutral, with a 12-month price target of $37. “We surprise ourselves with this move — it’s the first time we’ve ever recommended Viacom shares,” lead analyst Tim Nollen wrote in a note to clients. “But we believe Viacom has made some impressive investments in data and technology that will drive meaningful growth in targeted TV advertising, which can offset the past few years of ad declines based on ratings weakness and cord-cutting. Paired with stabilization in affiliate fees and a turnaround at Paramount, this renders the stock attractive.”
A few bears remain unpersuaded by recent signs of progress at Viacom, and the company is still laboring under the shadow of former CEO Philippe Dauman. After years of alienating distributors, cutting into the muscle of his executive team and reflexively buying back stock, all the while taking home some of the biggest paychecks in corporate America, Dauman was forced out in 2015.
Earlier this month, Sanford Bernstein analyst Todd Juenger lit into the company for “stuffing” ads into programming, a move he considers tantamount to cooking the books.