Viacom Could Be Upgraded – Analyst Blog

Entertainment content company Viacom Inc. (VIA.B) may get its long-term debt rating upgraded by Moody’s Investors Service due to the growth in its credit metrics driven by debt reduction and a strong balance sheet. 

 

Viacom is leaving no stone unturned to achieve long-term profitability through free cash flow generation, cost reduction and increasing efficiency.

 

Recently, Viacom resumed its dividend payout and share repurchase policy, which was suspended in early 2009 due to unfavorable economic conditions. Viacom intends to start a share repurchase program from the fourth quarter of calendar year 2010.

 

Viacom also expects to pay a regular quarterly cash dividend of 15 cents per share to stockholders on July 1, 2010. Viacom has been continuously showing signs of improvement. In the first quarter of 2010, the company’s U.S. advertisement revenues rose 1% year over year and international advertisement revenues spiked 3% year over year. This trend is likely to continue as a result of the improving global economy.

 

At the end of the first quarter of 2010, Viacom had $358 million of cash & cash equivalent on its balance sheet compared with $298 million of cash & cash equivalent at the end of fiscal 2009.

 

Viacom enjoys strong brand value with respect to its several cable TV channels and posted a solid performance in the first quarter of 2010.

 

Viacom has been opting for innovative ways to strengthen its market position. It launched its next-generation, multiplatform premium entertainment channel Epix, which offers video-on-demand and online service with access to more than 15,000 motion pictures. To date, Epix is distributed by Verizon Wireless (VZ) through its high-speed fiber-based FiOS network only. Recently, Viacom also entered into a deal with Dish Network Corp. (DISH) for the distribution of Epix.  

 

Viacom was been able to increase its consolidated operating income by 21% year over year in the first quarter of 2010. Effective cost cutting measures together with solid performance by motion picture were the primary reasons behind this strong performance. Viacom benefits from a well-balanced asset mix with entertainment content at its core. We currently maintain our Neutral recommendation on Viacom.