An assessment: Viacom versus its media peers

Media conglomerate Viacom (VIA) faces a number of competitors in its segments. Some of the main diversified entertainment companies with which Viacom competes include The Walt Disney Co (DIS), Time Warner Inc. (TWX), Twenty-First Century Fox (FOXA), Comcast (CMCSA), and Discovery Communications Inc (DISCA). From a multiples perspective, Viacom looks cheap as it trades at a 16.5x and 14.4x current and forward P/E. Viacom has the highest free cash flow yield as compared to its media peers. Investors find companies with robust free cash flow attractive as it raises expectations for excess cash deployment through reinvestment, debt pay-down, or increased shareholder returns as discussed in an article on our site Why media companies’ share repurchases help boost stock prices.

In terms of estimated EPS growth, Viacom’s growth rate is almost in line with that of its peers with the exception of Time Warner and Discovery Communications.

Media stocks have seen concerns regarding cable TV ratings and advertising trends, as well as rising programming costs leading to reductions in company growth outlooks. There is also competition from Netflix, Hulu, and Amazon who are providing alternatives to traditional media by creating original content. However, despite concerns of disruption of traditional media models, analysts such as Nomura’s Anthony DiClemente are upbeat about entertainment stocks. DiClemente said last month “We are confident that pricing power and new digital revenue will offset pressure on legacy media revenue streams. Media stocks are additionally supported by robust capital returns, a steady economy and undemanding valuation relative to growth.”

Viacom has been considered to be undervalued by analysts. The company is expected to see growth from its media networks segment especially with its digital partnership deals. Viacom has also been creating value for its shareholders by embarking on an aggressive stock buyback program and dividend announcements.