Following the fourth quarter earnings announcement on November 15 (ended September 2012), most of the analysts covering Viacom, Inc. (VIAB) have reduced their estimates mainly owing to softness in TV network ratings and lackluster movie business.
Fourth Quarter Highlights
Net income from continuing operations in the quarter was $643 million or $1.24 per share compared with $574 million or $1.00 per share in the prior-year quarter. Adjusted EPS of $1.24 was also above the Zacks Consensus Estimate of $1.17.
Total revenue in the reported quarter was $3,363 million, down 17% year over year and also below the Zacks Consensus Estimate of $3,428 million. Poor performance of the Filmed Entertainment business has resulted in the slowdown of revenue growth.Quarterly operating income was $1,050 million, up 13% year over year.
Agreements of Analysts
Of the 23 analysts covering the stock in the last 7 days, 14 analysts lowered their EPS estimates for the first quarter of 2013 but none increased the same. Likewise, for the second quarter of 2013, in the last 7 days, 13 analysts have slashed their EPS estimates but only one analyst raised the estimate.
For fiscal 2013, out of the 27 analysts, 10 analysts reduced their estimates while only four raised the same. However, for 2014, out of the 20 analysts, seven analysts revised their estimates downward while four moved in the opposite direction.
Currently, the Zacks Consensus EPS Estimate for the first quarter of 2013 is pegged at 98 cents. The projected annual decline rate is 7.1%. Similarly, for the second quarter of 2013, the current Zacks Consensus EPS Estimate of $1.01 reflects a year-over-year improvement of 2.92%.
Magnitude of Estimate Revisions
For the first quarter of 2013, over the last 7 days, the current Zacks Consensus Estimate was 15 cents below the previous estimate of $1.13. Similarly, for the second quarter of fiscal 2013, the Zacks Consensus Estimate was 7 cents below the earlier estimate of $1.08.
Likewise, for fiscal 2013, the current Zacks Consensus Estimate was 3 cents behind the previous estimate of $4.76 while in fiscal 2014, over the last 7 days, the current Zacks Consensus Estimate was 3 cents below the prior estimate of $5.48.
Earning Surprises
In three out of the last four quarters Viacom has outdone the Zacks Consensus Estimates with an average of 2.57% earnings surprise during the last four quarters. Likewise, in the last quarter the company produced an earnings surprise of 4 cents or 3.42%.
The current Zacks Consensus Estimate for the first and second quarter of 2013 reflects negative earnings surprises of 3.06% and 1.98% (essentially a proxy for future earning surprises), respectively.
Likewise, fiscal 2013, Viacom also reflect a downside potential of 0.42% but fiscal 2014 contains growth potential of 0.18%.
Our Recommendation
We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, global brands, strong share repurchase plan, multi-platform content, and is one of the fastest growing traditional ad media.
However, stiff competition fromother media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with slow economic recovery may act as headwinds for the stock going forward. We, thus, maintain our long-term Neutral recommendation for Viacom.
Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
NEWS CORP INC-A (NWSA): Free Stock Analysis Report
TIME WARNER INC (TWX): Free Stock Analysis Report
VIACOM INC-B (VIAB): Free Stock Analysis Report
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