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Earnings Scorecard: Viacom Inc.

Zacks Equity Research

Following the second quarter earnings announcement on May 3, most of the analysts covering Viacom Inc. (VIAB) have raised their estimates mainly based on the huge number of movies slated to release in 2012 coupled with improved advertising spending in the U.S. due to the upcoming presidential election to be held in 2012.

Second Quarter Highlights

Net income from continuing operations in the quarter was $588 million or $1.08 per share compared with $376 million or 63 cents per share in the comparable prior-year quarter. Adjusted EPS of 98 cents was also above the Zacks Consensus Estimate of 90 cents.

Total revenue in the reported quarter was $3,331 million, up 2% year over year and also beat the Zacks Consensus Estimate of $3,317 million. The year-over-year upside in revenue was mainly attributable to the strong performance of the Media Networks affiliated revenue segments. Quarterly operating income was $932 million, up 22.6% year over year.

Agreements of Analysts

Although most analysts are positive for 2012, out of the 24 analysts covering the stock in the last 7 days, none raised estimates for the third quarter of 2012 but eight analysts reduced the same. For the fourth quarter of 2012, seven analysts have raised the EPS estimate but only one analyst slashed the estimate over the last 7 days.

For fiscal 2012, out of the 28 analysts, eight analysts increased the estimates while none reduced the same. However, for 2013, out of the 27 analysts, four analysts revised the estimate upward while two moved in the opposite direction.

Currently, the Zacks Consensus EPS Estimate for the second quarter of 2012 is pegged at $1.03. The projected annual growth rate is 4.08%. Similarly, for the third quarter, the current Zacks Consensus EPS Estimate of $1.24 reflects a year-over-year gain of 16.86%.

Magnitude of Estimate Revisions

Over the last 7 days, the Zacks Consensus Estimate for the third quarter of 2012 dropped 4 cents from the earlier estimate of $1.07. However, for the fourth quarter of fiscal 2012, the Zacks Consensus Estimate was 2 cents above the earlier estimate of $1.22.

For fiscal 2012, the estimate went 2 cents above the previous estimate of $4.27 in the last 7 days, while in fiscal 2013, it was in line with the prior estimate of $4.99.

Earning Surprises

Over the last four quarters, Viacom has outdone the Zacks Consensus Estimate by an average of 7.22%. In the last quarter, the company produced an earnings surprise of 8 cents or 8.89%.

The current Zacks Consensus Estimate for the third and fourth quarters of 2012 reflect 0.00% earning surprise (indicating that the company should report in line with estimates in both quarters).

Fiscal 2012 should also show an earnings surprise of 0.00% but fiscal 2013 has a downside risk of 0.60%.

Our Recommendation

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, global brands, strong share repurchase plan, multi-platform content and the fact that it is a player in one of the fastest-growing markets (traditional ad media).

However, stiff competition fromother media companies like News Corp. (NWSA) and Time Warner Inc. (TWX) along with slow economic recovery may act as headwinds for the stock going forward. We, therefore, maintain our long-term Neutral recommendation on Viacom.

Currently, Viacom has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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