Viacom shares ready to break out: Brean Capital

Published Tue, Sep 13 201612:18 PM EDT

Viacom shares may be ready to finally break out of their trading range of the past year, driven by compelling valuations and a shift in strategy, according to analysts at Brean Capital, who upgraded the stock to buy from hold. "In our opinion, the stock has gotten cheap enough that most, if not all, of the negatives are fully discounted into the stock price, the sentiment is negative, and there are enough potential positive catalysts that the risk/ reward ratio has become quite positive," wrote equity analyst Alan Gould in a note to clients Tuesday. Source, FactSet In the past year, shares of Viacom are down about 6 percent. Since reaching a 52-week high in November, the stock remains down nearly 22 percent, dragged lower by management disputes between media magnate Sumner Redstone and the board of directors. Given the new implemented board, Brean Capital outlines three key catalysts that could take the stock higher: "A new plan from the current management team led by Tom Dooley, perhaps focusing on the 6-8 cable networks that generated 85-95 percent of the affiliate revenue and a plan to bring Paramount back to at least break-even profitability, which should be achievable given the estimated $300+ million that we would assume a 67-year old library should generate." "The potential monetization of 49 percent of Paramount for $4+ billion after-tax even though the Street seems to be highly discounting this scenario." "The potential recombination with CBS which we estimate would value VIA at $44 per share near term and $47 per share over 12 months assuming control shareholder NAI [National Amusements], and the Viacom and CBS Boards agree to the recombination." The near term price target of $44 set by Brean Capital implies a move of about 3 percent from Monday's close, while the 12-month estimate of $47 translates to a move of 10 percent from here. To be sure, although it's a "much less likely" scenario, the investment bank doesn't rule out the possibility that Viacom could be potentially acquired. "With a $26 billion enterprise value and assuming a very conservative $5 billion after-tax value for Paramount, the media networks are only valued at $21 billion…" wrote Gould. Viacom declined to comment on Brean Capital's notion that the company could be a takeover target.

A man enters Viacom headquarters in New York.

Daniel Acker | Bloomberg | Getty Images

"In our opinion, the stock has gotten cheap enough that most, if not all, of the negatives are fully discounted into the stock price, the sentiment is negative, and there are enough potential positive catalysts that the risk/ reward ratio has become quite positive," wrote equity analyst Alan Gould in a note to clients Tuesday.