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Jul 27, 2021
[4 min Read]
ViacomCBS (ticker: VIAC) is a global media and entertainment company focused on creating and distributing premium content. It operates through various brands including CBS, Showtime Networks, Paramount Pictures, Nickelodeon, MTV, Comedy Central, BET, CBS All Access, Pluto TV and Simon & Schuster.
ViacomCBS's BULL case
VIAC is an established profitable company with high free cash flow and a RoE of 17.7%. Yet it remains profoundly undervalued following persistant negative sentiment after the share price plummeted in March (see lower). It is currently trading at a PE ratio of merely 9.3 (historically ~15) compared to a median PE ratio of 21 in the Media industry. ViacomCBS is a low-risk high-reward bet with hardly any downside left.
Note that earnings estimates were consistently beat the 4 past quarters. Current Q2 consensus EPS is a meagre $0.96, but I see no reason for it to be any less than Q1, and instead I rather expect blow-out earnings this quarter thanks to:
Streaming war in numbers
|PE Ratio||sVOD subscribers (mio)|
|ViacomCBS (Paramount+)||9.3||36 (Q1: +20%) + 50 Pluto TV MAUs (Q1: +13%)|
|Netflix||53.5||209 (Q2: +0.7%)|
|Disney (Disney+)||N/A||104 (Q1: +10%)|
|Comcast (Peacock)||23.2||42 (Q1: +27%)|
What happened to the stock in March?
ViacomCBS shares saw a huge run up to $100+ at the start of this year after announcing its renewed Paramount+ premium streaming platform.
Bill Hwang's Archegos Capital Fund spotted the opportunity and accumulated VIAC stocks with enormeous leverage. ViacomCBS took advantage of its momentum and tried to capitalize by issuing new shares to fund the new streaming platform. This caused a modest price drop, unwittingly initiating a chain reaction: Bill Hwang got margin called. Multiple over-exposed banks (including GS, MS, DB and CS) rushed toward the exit and unwound Hwang's positions. Millions of shares were dumped simultaneously, tanking the stock price.
I should emphasize there was no fundamental reason for this plummet, rather an epic bid-ask imbalance. Remember: just days before, $3 billion "smart money" signed into the capital raise at $85 per share.
The stock is currently severely undervalued compared to its industry rivals despite its excellent fundamentals, growth potential and free cash flow. As a bonus it is a potential buyout candidate for Amazon, Netflix, the newly merged WarnerMedia-Discovery or even Apple who are all in search of new content.
ViacomCBS is a coiled spring waiting to pop, and this might be your last chance to get on board cheap before Q2 earnings are released next week.
Disclaimer: I am not a financial professional, always do your own DD.
Disclosure: I put my money where my mouth is and have a $25K long position in VIAC.
PS: Blue horseshoe loves VIAC