Rarest Of Gems? Here's Why This Analyst Is Upgrading ViacomCBS

ViacomCBS (NASDAQ: VIAC) received a major thumbs up from Steven Cahall, senior equity analyst at Wells Fargo Securities, who upgraded the company’s stock rating from Equal-Weight to Overweight and upped its price target from $45 to $60.

What Happened: Cahall acknowledged that “historically, we have been bears and saw streaming as a Show Me story. They’ve shown us!” — and among the major streaming players, he picked ViacomCBS for having the best to offer in this sector.

“We see content capabilities like VIAC’s studios as among the rarest gems,” he wrote in the note. “We think crystallization of further streaming value in the stock may be the controlling shareholder’s final act before looking to transact, and the timing is right.”

Cahall theorized that ViacomCBS can provide “what we believe will be a successful pivot to streaming” through its mix of diverse content through its Paramount+ service, adding that the company benefits from its studio size and library. He also pointed out media coverage that insisted ViacomCBS was a potential takeover target. While those reports came to naught, Cahall highlighted that similar coverage focused on Comcast Corporation’s (NASDAQ: CMCSA) NBCUniversal.

“If NBCU were to be merged/acquired, it could leave VIAC looking for a dance partner,” he wrote.

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What Could Happen Next: Cahall noted that besides dueling with Comcast for streaming viewers, ViacomCBS is taking its $14 billion-plus annual content budget into streaming combat the “deep pockets” of Walt Disney Co (NYSE: DIS), Netflix (NASDAQ: NFLX), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) and the newly merged entity created by AT&T’s (NYSE: T) WarnerMedia and Discovery, Inc. (NASDAQ: DISCA).

“As such, success in streaming against a lot of competition for video streaming time is far from guaranteed,” he wrote.

Nonetheless, he reiterated an “incremental bullishness” supported by the upcoming Paramount+ content slate include two new “South Park” feature films, an upcoming “Reno 911” reboot and NFL and SEC football via the CBS broadcast feed.

Cahall forecasted an nearly 150% revenue growth for ViacomCBS between 2020 and 2022 “from ~$2.5bn to ~$6.4bn.” And while he duly noted that Disney and Netflix had higher absolute revenue, “we think the pace of change for VIAC on a revenue base that’s decently sized already is sufficient for us to get more positive.”

VIAC Price Action: The stock is trading higher by 4.5% to $40.78 at publication time.

Photo: The “South Park” gang, part of ViacomCBS’ Paramount+ streaming service. Photo courtesy Comedy Central.

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