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Viacom ratings reduced
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September 29, 1998: 1:31 p.m. ET
Media giant faces rough waters due to publishing, video units, analysts say
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NEW YORK (CNNfn) - Viacom Inc.'s shares lost some 15 percent of their value Tuesday after a few Wall Street analysts backed away from the media giant's near-term business outlook.
The more-actively traded class B stock (VIA.B) was down 10-1/8 at 53-1/2 in midday trading on the American Stock Exchange. With volume exceeding 3.5 million shares, the issue easily topped the most active list on the exchange.
The main culprit behind the selling was a ratings cut by Merrill Lynch analyst Jessica Reif Cohen, who expressed concern about profits at Viacom's publishing and video rental subsidiaries.
"We have reduced our third-quarter estimate (for operating cash flow) by approximately $90 million from $850 million to reflect short- term operating difficulties at the publishing division as well as some near-term cost pressures at Blockbuster Video," Reif Cohen said.
The analyst took her long-term rating down from "buy" to "accumulate." Deutsche Bank also reduced its investment rating, and others in the financial community said they weren't surprised by the magnitude of the stock reaction.
"Anytime a couple of prominent analysts drop the stock, they kick it," said David Londoner, media analyst at Schroder & Co.
Viacom is on-track to complete the sale of two divisions of the publishing unit by the end of October. Pearson PLC agreed to buy Simon & Schuster's reference and education units for $4.6 billion, but cash flow at the overall unit still is likely to be lower than anticipated, Reif Cohen said.
Blockbuster Video, meanwhile, is making progress in growing its market share through customer satisfaction initiatives. But the gains are coming at the cost of higher promotion and marketing expenses, Reif Cohen said.
Viacom officials had no immediate comment. 
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Viacom
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