Viacom, long the darling of Wall Street, finished up another rocky week as jitters over a slowdown in advertising, particularly in radio, continue to roil the stock.
The shares fell 8% to $55 Friday. They recovered a bit to close at $57.75 as Merrill Lynch and Goldman Sachs stepped in with notes to clients touting the company’s underlying health and prospects. The firms have 12-month price targets on Viacom of $100 and $90 a share, respectively.
Viacom shares traded up to 52-week high of $75 in August as the market applauded the merger with CBS and the strong mix of assets. But the businesses are highly ad dependent, with about 65% of revenue coming from advertising. Internet advertising has tapered off since April, when a huge downward correction on the Nasdaq took the wind out of many dot-coms.
In addition, high oil prices has some predicting an economic slowdown in the U.S. that would certainly cramp the overall ad picture. Merrill’s Jessica Reif Cohen said September advertising was expected to be poor for all media outlets, particularly the broadcast networks and TV stations — excluding NBC, which is broadcasting the Olympics.
Viacom’s future vigor
The analysts said they expect Viacom to show strong growth anyway, in broadcasting and cable TV as well as at Infinity, which houses its radio and billboard assets. Some say that Infinity’s radio markets, which are big and urban, are less vulnerable to a downturn in advertising than some of its competitors in smaller markets.
Ad worries have dampened other media stocks as well. Walt Disney is off its high of $44 earlier this year to just over $37 at Friday’s close. The Mouse is slowly, but many say steadily, turning around its giant and ailing consumer products business. “Disney starts to look attractive in the mid-$30s,” said one analyst.
At $78, Time Warner appears to be the favorite just now. The shares are way down from their high of $105 last spring, and Wall Streeters are calling it the big entertainment play with both the highest risk and the highest reward thanks to TW’s pending merger with AOL.