Not sure if you noticed.
Early on Thursday morning, Bank of America analyst Jessica Reif Ehrlich (3 stars at TipRanks) "double" upgraded ViacomCBS (VIAC) all the way from "Underperform" to "Buy," while increasing her price target from $38 (below where it trades now) to $53, 33% higher than Wednesday's closing price.
In her piece, Erlich states, "We believe the recently announced transaction between (DISCA) (Discovery) and Warner Media (of AT&T (T) ) will spur further media consolidation as industry participants seek increased scale. In our view, VIAC's deep breadth of content (library of 140K+ TV episodes and 3600+ films across sports, movies, comedy, news, children, etc.) has value as an entity or if sold in individual parts."
This is precisely what I wrote on the AT&T/Discovery deal a few days back when I mentioned that I would be taking victory laps in Discovery and ViacomCBS and that I preserved half of a full position in ViacomCBS -- content at perhaps a reasonable price. On an honest note, I was lucky to get out of the second half of my DISCA long just above my net basis, turning my grand victory over a former rival into a more modest victory. Still a win, though.
One could see that (my opinion) VIAC had suddenly become more valuable in an environment controlled by a few powerful entities and despite how it seems, not just scarce in "in house" content providers, but truly scarce in "in house" legacy content.
You May Have Noticed
Earlier this week, when David Tepper's Appaloosa LP's 13F filing was made public, I noticed that a number of well-known Sarge names were moving back and forth. For one, Appaloosa exited Wells Fargo (WFC) . Yes, Buffett and Tepper both. Yet here I am. Uh oh. Appaloosa also cut back on Micron (MU) . However, on the plus side, Appaloosa increased their long in Freeport-McMoRan (FCX) , and initiated a new long position in ViacomCBS.
VIAC was trading above $100 per share in late March prior to the Archegos Capital Management fiasco that forced a number of investment banks to liquidate large positions, and as we saw, some were far more professional in their risk management than others. The stock, after collapsing, has traded in a rather narrow range spanning the high $30s to the low $40s ever since.
The shares are trading 3% higher Thursday on the BofA double upgrade. Still, they trade at less than 10 times forward (12 months) expected earnings. The entire market cap comes to less than $26 billion, as compared to Comcast (CMCSA) , which has been mentioned speculatively as a potential suitor. Comcast is a $249 billion company, so for outsiders looking in, a more bitter pill to swallow, and as for a merger between the two... I don't know how one can think about combining CBS and NBC unless there is a lot of messy engineering (spinoffs) involved.
Streaming entertainment industry leader Netflix (NFLX) sure could use a vast infusion of "in house" content. That said, Netflix has a cash position of roughly $8 billion, and a long-term debt-load approaching $15 billion. As for Disney (DIS) , they have more cash on hand ($15 billion) than does Netflix, but they have to be focused on getting their cash flow positive businesses going, and as ABC is part of the "House of Mouse," they would be in a similar position as would be Comcast.
Two shops that sure could use a serious upgrade in content and have the money to spend on it would be Apple (AAPL) and Amazon (AMZN) . They both with sizable cash positions -- $69 billion and $73 billion, respectively -- and both have "sub-top tier streaming services in Apple TV Plus and Amazon Prime Video. If I were a gambling man, my bet, with no information other than my own speculation, would be on one of these two.
I am hanging on to my half-position in VIAC. Heck, the shares do run with a dividend yield of 2.42%. The stock is now trading back up where I made that partial sale. Selling more is out of the question. That was just locking in a profit. We get a selloff in coming weeks as perhaps a potential deal does not materialize, or the broader market drags the name lower, I think this one is an add below $39.