We upgrade our recommendation for Viacom Inc. (VIA: 40.09 +0.19 +0.48%) to "Outperform" ahead of its first quarter 2010 financial results. The company will declare results on April 29, before the opening bell. An improving economic outlook, together with Viacom's disciplined management team, highly complementary mix of assets and a healthy financial position continue to make us optimistic about the company's future growth prospects.
Viacom is likely to benefit from rising sales of its Paramount movies and an improving advertising market. The stock is currently trading at significantly low multiples with respect to several valuation metrics compared with its peers, which we believe does not adequately reflect the true growth potential of the company. Viacom enjoys strong brand value with respect to several pay-TV channels.
Estimate Revisions Trend
The overall trend in estimate revisions is favorable. Over the last 30 days, 2 out of 12 analysts covering the stock raised their earnings estimates for the first quarter of 2010 while 1 moved in the opposite direction. For full fiscal 2010, 5 of the 17 analysts covering the stock raised earnings estimates during the last 30 days and no analyst has made any downward revision.
Currently the Zacks Consensus Estimate for the first quarter 2010 earnings is 54 cents per share, flat year-over-year. Nevertheless, the current Zacks Consensus Estimate of $2.71 per share for full fiscal 2010 earnings indicates an improvement of 6% year-over-year.
Given the upward estimate revisions recently, the Zacks Consensus Estimate has moved up by 8 cents in the last 30 days for the first quarter 2010 and by 5 cents for full fiscal 2010 during the same time frame.
With respect to earnings surprises, Viacom's track record is a fairly encouraging one due to the average earnings surprise of 16% in the last four quarters, which means that it has outperformed the Zacks Consensus Estimate by that measure over the last year.
The current Zacks Consensus Estimate of 54 cents for the first quarter of 2010 contains a significant upside potential (essentially a proxy for future earning surprises) of 13%. However, with respect to full fiscal 2010, the positive upside potential is a modest 1.5%.
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