ViacomCBS Inventory Up 160% However Full Restoration Is Not But Full

We consider that ViacomCBS inventory (NASDAQ: VIAC) could also be an honest alternative this present day. VIAC trades at $29 at the moment and is, the truth is, down 29% to this point this 12 months (from $41 firstly of 2020). It traded at $35 in February 2020 – simply earlier than the coronavirus pandemic hit the world – and is at the moment nonetheless 16% beneath that degree, as nicely. That is regardless of VIAC inventory gaining over 160% from its March lows of $11 to succeed in $29 as on seventh October 2020, in comparison with the S&P 500 which elevated somewhat over 50% throughout this time. The inventory outperformed the broader market due to sturdy efficiency of its streaming enterprise in the course of the pandemic and stimulus measures introduced by the Fed. Along with the inventory being considerably beneath its pre-Covid ranges, the gradual lifting of lockdowns has elevated expectations of revival within the company’s conventional cable and studio companies as nicely, which might result in a rise within the inventory value as soon as the present disaster abates. Our conclusion is predicated on our detailed comparative evaluation of ViacomCBS inventory efficiency in the course of the present disaster with that in 2008 recession in our interactive dashboard.

2020 Coronavirus Disaster

Timeline for 2020 Disaster So Far:

• 12/12/2019:  Coronavirus instances first reported in China
• 1/31/2020:  WHO declares a world well being emergency.
• 2/19/2020:  Indicators of efficient containment in China and hopes of financial easing by main central banks helps S&P 500 attain a file excessive
• 3/23/2020: S&P 500 drops 34% from the height degree seen on Feb 19, as COVID-19 instances speed up outdoors China. Doesn’t assist that oil costs crash in mid-March amid Saudi-led value struggle
• Since 3/24/2020: S&P 500 recovers 50% from the lows seen on Mar 23, because the Fed’s multi-billion greenback stimulus bundle suppresses near-term survival nervousness and infuses liquidity into the system.

In distinction, right here is how VIAC inventory and the broader market carried out in the course of the 2007-08 disaster.

Timeline for 2007-08 Disaster

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline akin to Lehman chapter submitting (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Preliminary restoration to ranges earlier than accelerated decline (round 9/1/2008)

VIAC and S&P 500 Efficiency Over 2007-08 Monetary Disaster

VIAC inventory declined from ranges of over $23 in September 2007 (pre-crisis peak) to ranges of lower than $four in March 2009 (because the markets bottomed out), implying VIAC inventory misplaced 85% from its approximate pre-crisis peak. It recovered submit the 2008 disaster, to ranges of near $12 in early 2010, rising by 237% between March 2009 and January 2010. Compared, the S&P 500 Index noticed a decline of 51% and recovered 48%.

VIAC Fundamentals Over Current Years Have Been Sturdy

ViacomCBS revenues elevated from $26.5 billion in 2017 to $27.eight billion in 2019, attributable to larger TV and Filmed leisure revenues. (The company’s revenues previous to 2017 are usually not comparable because the impact of the merger between Viacom and CBS will not be accounted for within the prior years). Together with larger revenues, margins additionally improved over latest years with EPS rising from $3.63 in 2017 to $5.38 in 2019. Nonetheless, the company’s Q2 revenues noticed a 12% y-o-y decline. Earnings got here in at $0.78/share as towards $1.59/share within the year-ago interval, primarily attributable to decrease income and better restructuring expense.

Does VIAC Have Ample Money Cushion To Meet Its Obligations By means of The Coronavirus Disaster?

VIAC’s whole debt greater than doubled from $9.5 billion in 2017 to $19.7 billion on the finish of Q3 2020, whereas its whole money shot up from $285 million to $2.Three billion over the identical interval. On the identical time, the company’s money from operations halved from $2.four billion to $1.2 billion. Although the corporate will climate the affect of the pandemic, decrease money technology and considerably larger debt burden might show to be an obstacle in realizing the entire potential beneficial properties submit the present disaster.

Conclusion

Phases of Covid-19 Disaster:

• Early- to mid-March 2020: Concern of the coronavirus outbreak spreading quickly interprets into actuality, with the variety of instances accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival nervousness
• Might-June 2020: Restoration of demand, with gradual lifting of lockdowns – no panic anymore regardless of a gradual enhance within the variety of instances
• July-October 2020: Poor Q2 outcomes and lukewarm Q3 expectations, however continued enchancment in demand,a decline within the variety of new instances, and progress with vaccine growth buoy market sentiment

The precise restoration and its timing hinge on the broader containment of the coronavirus unfold. Our dashboard Tendencies In U.S. Covid-19 Circumstances offers an outline of how the pandemic has been spreading within the U.S. and contrasts with traits in Brazil and Russia. As traders focus their consideration on anticipated 2021 outcomes, we consider ViacomCBS inventory has the potential for sturdy beneficial properties as soon as fears surrounding the Covid outbreak are put to relaxation. That mentioned, the strain on the company’s stability sheet within the type of excessive debt and low money stays a threat issue to the belief of those beneficial properties.

What if you’re on the lookout for a extra balanced portfolio as an alternative? Here’s a top quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of corporations with sturdy income development, wholesome earnings, masses of cash, and low threat, it has outperformed the broader market 12 months after 12 months, constantly.

 

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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.