Will This Company Have Investors Laughing All the Way to the Bank?

By Ryan Guenette - September 6, 2012 | Tickers: CBS, NWSA, TWX, VIAB, DIS | 0 Comments

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Viacom (NASDAQ: VIAB) is an entertainment content company. The company connects to its audience through captivating content across several platforms, including television, motion pictures, online, and mobile, in more than 160 countries. Its portfolio of brands includes, Paramount Pictures, Paramount Vantage, Paramount Classics, MTV Films, and Nickelodeon Movies. Since going public in 2005, Viacom has rallied 15.95%, slightly outperforming the S&P 500 during this period. As the battle for the massive television market has been rolling on, Viacom has developed new shows on both of their channels. However Viacom does face incredible competition from giants such as Disney, which has funds well superior to Viacom’s to buy the child’s attention. So will this entertainment company have its investors laughing all the way to the bank?

Fundamentals Are Not Spongy

In 2009, Viacom reported earnings per share of $2.62. In 2014, the average analyst consensus believes that Viacom will derive $5.67 per share from its business operations. This represents a 116.41% increase in earnings of just five short years. Based on these statistics, the company’s compound annual growth rate (CAGR) is 16.70%, a fast-paced, yet sustainable rate. Viacom’s growth is consistent over this time period, and should fuel a future upward move in the stock. Additionally, at the current moment, Viacom pays out an annual dividend of $1.12, which at the current price, puts the company’s dividend as yielding 2.21%. 2012 is the first year Viacom has paid out dividends, but it should not be the last. While no dividend growth is expected by the street, the company’s dividend outpaces the ten year treasury rate and inflation rate as is. From this we can see Viacom’s financial strength, annualized double digit growth rate, and decent sized dividend.

The chart below displays Viacom’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the foreseeable future.

Growth Prospects & Product Innovation

The battle for the attention of the consumer is a fierce and highly competitive one. Viacom is the industry leader in the race for the teenagers’ to young adults’ with its MTV channel, while it is relatively even in terms of capturing the tweens’ to teenagers’ eyes with its Nickelodeon channel. As the chart below displays, Nickelodeon is the most effective in terms of capturing the viewer’s interest, and driving them to website, which is a highly efficient source of revenue.

Nickelodeon has been able to dominate the younger viewing market because of its consistent stream of innovative and fresh shows. While Spongebob has been a staple of the channel, new shows such as iCarly, Victorious, and Big Time Rush have absorbed viewers and kept them coming back to the channel. If Viacom is able to continue to innovate into the future, they will remain dominant in the sectors they operate in.

In addition, as the chart below displays, the number of televisions sold is increasing, and with the more televisions, the more viewers Nickelodeon will have.

Finally, the penetration of emerging markets such as India will lead to further growth from the company. The chart below displays the Indian media industry’s growth prospects.

Who Is the King of the Television?

Compared to some of Viacom’s most prominent competitors, such as: The Walt Disney Company (NYSE: DIS), Time Warner (NYSE: TWX), CBS (NYSE: CBS), and News Corporation (NASDAQ: NWS), Viacom compares relatively favorably.

In terms of growth, CBS is the industry trailblazer, while Viacom is the laggard. All companies pay out decent sized dividends, with Time Warner possessing the largest dividend and CBS possessing the fastest growing dividend. In the fundamental ratio comparison, Viacom appears to trading at a bargain, while News Corporation trades at a hefty premium. All companies trade around the ideal number 1 when growth is taken into account. In the net profit margin comparison, Viacom stands out to the upside, while News Corporation stands out to the downside.

The Foolish Bottom Line

The media industry is a fierce and highly competitive sector, and to remain successful in the industry a company must continuously innovate and create new brands and products, as the consumer has almost an unlimited number of choices. Viacom has dominated the young viewer section of the industry, and should continue to do so in the future as they roll out new shows and brands. The company is relatively financially strong, and possesses an annualized double digit growth rate. Its dividend outpaces the ten year treasury rate and the inflation, it is not overly significant. While I prefer Disney, Viacom is a decent company with moderately bullish prospects. 

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