ViacomCBS Stock: Substantial Upside Lurking

I am bullish on ViacomCBS (NASDAQ: VIAC) as it has a strong competitive position within the media industry, a solid growth outlook, reasonable valuation multiples on its stock at the moment, and substantial upside potential relative to its average price target.

ViacomCBS is an entertainment and mass media company which was formed after the merger of the second incarnation of Viacom and second incarnation of CBS Corporation in 2019.

Headquartered in New York, the company has approximately 22,109 employees. Its subsidiaries include Bellator MMA, Westinghouse Licensing, and VidCon.

Through its networks, studios, live events, streaming services, and merchandise, the company has created a diversified portfolio to cater to different audience types. The American media division handles the operations of its internet brands and streaming services.

Strengths

ViacomCBS’s portfolio includes several renowned brands and companies, including Nickelodeon, Comedy Central, MTV, Channel 5, Network 10, and Paramount Network.

It has partnered with several clients across five different continents and approximately 180 companies to offer distribution, production, and advertising solutions worldwide.

The strong global footprint makes this company one of the leading names in the industry. The strong distribution network, free cash flow, and customer satisfaction levels put this company at the forefront of the industry as one of the most thriving endeavors on a multinational level.

It also has a proven track record of successful execution of new product launches backed by innovative capabilities and a highly skilled workforce. ViacomCBS also enjoys good return on capital expenditures by creating new revenue streams.

Recent Results

In Q3 of 2021, the company experienced a year-over-year revenue increase of 13%, with streaming revenue crossing $1 billion for the first time. The year-over-year increase for streaming revenue stood at 62%, which was backed by a massive influx of advertising and subscriptions.

Its streaming subscription and streaming advertising revenue also grew by 79% and 48%, respectively. The revenues of three and nine months ended in September were $6,610 million and $20,586 million, respectively. In 2020, those numbers were $,5,837 million and $18,411 million, respectively.

Valuation Metrics

VIAC stock looks reasonably priced at the moment. Its EV/EBITDA ratio is a little low relative to its history at 8.5 times compared to its historical average of 8.7 times.

However, its price-to-normalized earnings ratio is slightly elevated at 10 times compared to its historical average of 9.8 times. Analysts expect the company to see solid 4.3% revenue growth and 5.8% normalized earnings per share growth in 2022.

Wall Street’s Take

According to Wall Street analysts, VIAC earns a Moderate Buy analyst consensus based on six Buy ratings, five Hold ratings, and one Sell rating in the past three months. Additionally, the average Viacom price target of $47.33 puts the upside potential at 33.6%.

Summary and Conclusions

ViacomCBS is well-entrenched media company with a large viewership and well-recognized brands. Furthermore, its share price looks reasonably valued relative to its history and the growth outlook is also decent.

On top of that, Wall Street analysts are generally bullish on the stock and the average price target implies very substantial upside for the shares over the next year.

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