Neither Love nor Respect

11/17/2010 12:05 pm EST

Focus: FUNDS

Andrea Kramer

Associate Editor, Schaeffer's Investment Research, Inc.

Andrea Kramer of Schaeffer's Investment Research says media giant Viacom's stock could extend its run at the expense of skeptical analysts and short-sellers.

[A recent article on Investopedia.com—“ Viacom A Hit With Investors,” November 16th], notes that, despite a struggling film unit, entertainment company Viacom (NYSE: VIA, VIA.B) "is currently benefiting from a number of television hits and a recovery in advertising spending."

Best reflecting the company's growth was its most recent quarterly earnings report, which revealed that total revenues (excluding write-downs related to its Harmonix video-game operation, which the company disclosed plans to sell) increased a respectable 5% to reach $3.3 billion last quarter—exceeding [Wall] Street's expectations.

Furthermore, its Media Networks division—which consists of [cable] channels such as MTV, VH1, Nickelodeon, and Comedy Central—accounted for 64% of the total top line and grew 8% on a boost in advertising trends. Plus, analysts are predicting full-year sales growth of more than 5% for VIA, with per-share earnings expected to dock in the $3.24 range.

In addition, the columnist points out VIA's impressive price action of late. "Viacom's share price continues to move upward and is bumping up against its highs over the past year," the author said, adding that the stock's forward price-to-earnings ratio "is still pretty reasonable at about 14x."

Against this backdrop, the writer opines that Viacom "should remain relevant as distribution continues to shift to the Internet," and [that] the recent rebound in advertising spending could benefit the company even more "if its film unit releases a few hits sometime soon."

The shares of VIA have, in fact, been on fire during the past year, advancing roughly 35% along the support of their ten- and 20-week moving averages. What's more, the equity has outshone the broader Standard and Poor's 500 index by more than 12% during the past 60 sessions, tagging a new all-time high of $45.68 earlier this month.

Regardless of the security's status as a broad-market standout, the Street remains wary of the up-trending equity. According to Thomson Reuters, the consensus 12-month price target on the stock stands at just $43.84, [about in line with its closing price of $43.70 on Tuesday]. Furthermore, despite deflating by 4.2% during the most recent reporting period, short interest still accounts for 1.02 million VIA shares. In fact, at the stock's average daily trading volume, it would take more than 20 sessions to buy back all of these bearish bets.

From a contrarian standpoint, this combination of impressive fundamentals, a solid technical footing, and lingering pessimism on the Street presents an appealing bullish opportunity. Should the shares extend their journey into the black, a wave of upbeat analyst attention or a short squeeze could launch VIA into uncharted territory.

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