Is Viacom a Solid Investment?

With shares of Viacom (NASDAQ:VIAB) trading around $80, is VIAB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Viacom is an entertainment content company that connects with audiences through compelling programs across television, motion picture, online, and mobile platforms around the world. The company operates in two segments, Media Networks and Filmed Entertainment. Viacom’s Media Networks segment provides entertainment content and related branded products for consumers in targeted demographics attractive to advertisers, content distributors, and retailers. The company’s Filmed Entertainment segment produces finances and distributes motion pictures and other entertainment content under the Paramount Pictures, Paramount Vantage, Paramount Classics, Insurge Pictures, MTV Films, and Nickelodeon Movies brands.

Viacom reported strong results for the fiscal 2013 fourth quarter and full year ended September 30. Fourth-quarter revenues increased 9 percent to $3.65 billion, reflecting higher revenues in both the Media Networks and Filmed Entertainment segments. Adjusted operating income rose 16 percent in the quarter to $1.21 billion, with strong growth across business units. Adjusted net earnings from continuing operations attributable to Viacom increased 18 percent to $739 million, and adjusted diluted earnings per share from continuing operations were up 28 percent to $1.55 per diluted share. Sumner M. Redstone, executive chairman of Viacom, said in the company’s earnings release: “Viacom’s outstanding performance proved once again the broad global demand for our valuable content. Looking forward, our world-class brands are perfectly positioned to build on this performance and achieve even greater success.”

T = Technicals on the Stock Chart Are Strong

Viacom stock has been on an explosive run over the last couple of years. The stock is now trading at all-time high prices and does not seem ready to slow down. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Viacom is trading between its rising key averages, which signals neutral price action in the near-term.

VIAB

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Viacom options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Viacom Options

21.97%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Average

Average

January Options

Average

Average

As of Thursday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Viacom’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Viacom look like and, more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

36.29%

32.99%

-10.28%

142.10%

Revenue Growth (Y-O-Y)

8.59%

13.95%

-5.88%

-16.14%

Earnings Reaction

-1.89%*

6.46%

2.98%

1.71%

Viacom has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been pleased with Viacom’s recent earnings announcements.

*As of this writing.

P = Excellent Relative Performance Versus Peers and Sector

How has Viacom stock done relative to its peers – 21st Century Fox (NASDAQ:FOXA), Comcast (NASDAQ:CMCSA), and CBS (NYSE:CBS) — and sector?

Viacom

21st Century Fox

Comcast

CBS

Sector

Year-to-Date Return

54.72%

54.64%

27.41%

59.13%

49.97%

Viacom has been a relative performance leader, year-to-date.

Conclusion

Viacom is a provider of entertainment services through its television, film, online, and mobile platforms. The company reported strong results for the fiscal 2013 fourth quarter and full year ended September 30. The stock has been on a euphoric move higher in the last few years and does not seem ready to slow down. Over the last four quarters, investors have been excited about the company, as earnings have been increasing and revenue figures have been improving. Relative to its peers and sector, Viacom has been a year-to-date performance leader. Look for Viacom to continue to OUTPERFORM.

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