Will Viacom Be a Blockbuster?

Investors' anxiety about the dragging economy eclipsed the upbeat first-quarter results that Viacom (VIA ) reported on Apr. 24. Bolstered by acquisitions, the media and entertainment giant's quarterly revenues soared 90%, to $5.75 billion, and earnings before interest, taxes, depreciation, and amortization (EBITDA) zoomed 145%, to $1.15 billion. But investors weren't impressed: Viacom's shares fell nearly 2, to 51.30 a share that day. With 50% of Viacom's revenues coming from advertising sales, shareholders worry the slowdown will hurt future revenues. Indeed, Viacom expects second-quarter cash flow to shrink due to a weak TV ad market and a possible actors/writers strike.

But some Viacom bulls think the worry is overblown. "The stock's current weakness is an opportunity to buy the values that Viacom represents," says Lewis Rabinowitz, president of R. Lewis Securities, who has been a long-term Viacom bull. He first bought into Viacom in December, 1987, when the stock was trading at a split-adjusted 21. He trimmed his holdings when it ran up to 76 last August, but came in for more when the stock fell to 40 later in the year. "Viacom could double in 12 months" as the economy starts snapping back, says Rabinowitz.

Mario Gabelli, whose mutual funds own a 7% stake, also expects Viacom to be a winner when the economy improves. And Merrrill Lynch's Jessica Reif-Cohen calls Viacom "a compelling value." Despite the tough ad market, she says, "we continue to believe Viacom will excel relative to its peers in both tough and strong times."

By Gene G. Marcial

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