Is Viacom a Worthwhile Investment?

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Viacom

With shares of Viacom (NASDAQ:VIAB) trading around $79, is VIAB an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Viacom is an entertainment content company that connects with audiences through compelling content across television, motion picture, online, and mobile platforms around the world. The company operates in two segments: Media Networks and Filmed Entertainment. Viacom’s Media Networks segment provides entertainment content and related branded products for consumers in targeted demographics attractive to advertisers, content distributors, and retailers. The company’s Filmed Entertainment segment produces finances and distributes motion pictures and other entertainment content under the Paramount Pictures, Paramount Vantage, Paramount Classics, Insurge Pictures, MTV Films, and Nickelodeon Movies brands.

Viacom delivered a profit for the latest quarter but it missed Wall Street’s expectations. However, the company did beat the revenue expectations. A revenue beat is almost always a positive sign to investors in the company since it reflects high growth out of the business.

T = Technicals on the Stock Chart are Strong

Viacom stock has been on an explosive run over the last couple of years. The stock is now trading at all-time high prices and does not seem ready to slow down. Analyzing the price trend and its strength can be done using key moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Viacom is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

VIAB

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Viacom options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Viacom Options

21.34%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings, revenue growth rates, and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Viacom’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Viacom look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

32.99%

-10.28%

142.10%

25.69%

Revenue Growth (Y-O-Y)

13.95%

-5.88%

-16.14%

-17.02%

Earnings Reaction

6.47%*

2.98%

1.71%

2.58%

Viacom has seen increasing earnings and improving revenue figures over the last four quarters. From these numbers, the markets have been excited about Viacom’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Viacom stock done relative to its peers, Twenty-First Century Fox (NASDAQ:FOXA), Comcast (NASDAQ:CMCSA), CBS (NYSE:CBS), and sector?

Viacom

Twenty-First Century Fox

Comcast

CBS

Sector

Year-to-Date Return

50.51%

42.04%

22.22%

43.19%

39.71%

Viacom has been a relative performance leader, year-to-date.

Conclusion

Viacom is a provider of entertainment services through its television, film, online, and mobile platforms. A recent earnings release has investors optimistic about the company. The stock has been on a euphoric move higher in the last few years and does not seem ready to slow down. Over the last four quarters, investors have been excited about the company as earnings have been increasing and revenue figures have been improving. Relative to its peers and sector, Viacom has been a year-to-date performance leader. Look for Viacom to continue to OUTPERFORM.

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