|
|
|
|
 | | A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons. |
|
|
NEW YORK (CNN/Money) -
The box office was dominated over the long weekend by Coach Carter, which took in a hefty $29 million for Paramount Pictures and MTV, two divisions of Viacom. The film, based on actual events, is a story about a basketball coach who makes some tough calls to force his players to improve their academic grades.
That plot line isn't so different from what's going on at Viacom, where CEO Sumner Redstone has been getting tough himself to get shareholder returns up.
The past year has been tough at Viacom, and not just because of embarrassing reporting failures at its CBS news division that led to four key employees leaving their jobs.
Growth has been poor at Viacom's Infinity Broadcasting radio division, and some experts say satellite and digital radio will undermine that franchise.
In addition, three credit-rating agencies have announced that they may downgrade Viacom's grade A credit rating if the company takes on any more debt.
Redstone's presumed successor Mel Karmazin left Viacom in June, and Redstone has tapped two of the conglomerate's high-level executives to compete for the top spot. The move may encourage constructive rivalry but also revives analysts' concerns that the 81-year-old CEO is still unwilling to lock in a succession plan.
What those analysts who like Viacom are counting on, however, is that Redstone will energetically try to get the stock up while he is still CEO.
Since the Blockbuster movie-rental business is no longer the cash cow it once was, Redstone decided to split it off after a complex stock swap. But first, he obtained a $5 a share special dividend, worth a total of more than $730 million, from the partially owned division, which already had its own stock trading publicly.
Viacom is also buying and selling radio properties to try to improve returns in that division. And new technology is bringing digital quality to the types of stations Infinity operates.
Moreover, the concerns voiced by the leading credit-rating agencies come in response to statements by Redstone that he was willing to take on more debt. He says he is willing to risk a ratings downgrade, if there is a good opportunity to invest borrowed money that would boost shareholder returns.
Although Viacom's earnings gain for 2004 is estimated at only 11 percent or so, analysts see growth eventually accelerating -- and some think that pickup will begin this year.
Among the key positive factors they point to are solid growth in new and existing cable networks; a recovery at CBS; likely further acquisitions, particularly in cable; and stock buybacks that would accelerate growth in earnings per share.
At $38.32, the stock may look fully priced, trading at nearly 22 times earnings. But Viacom's (Research) share price is virtually half what it was in 2000. And the company's mix of strong franchises has only been improved by cashing out of Blockbuster. The bulls on the stock see a $44 to $48 target price in the next 12 months.
Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Monday.
|
