ViacomCBS Stock Is a Diamond in the Rough

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ViacomCBS (NASDAQ:VIAC)  may be making all the right moves when it comes to streaming. But investors have yet to get excited again about VIAC stock. Since cratering in April, due to the Archegos blow up, the shares of the media conglomerate have traded sideways, changing hands for around $45 per share.

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Chances are, though, that the shares won’t stay stuck at their current price levels forever.

Two potential catalysts could boost VIAC stock. First, the company’s pivot to streaming could continue to be successful, helping to remove many of the fears that have weighed down the stock.

Secondly, talk about  takeovers in the media sector is still ongoing. Big tech and big media are looking to consolidate further, so ViacomCBS could be taken over for a price well above the level at which VIAC stock is trading now.

With the main risk facing Viacom/CBS — a faster-than-expected decline of its broadcast/cable TV revenue — priced in at today’s valuation, and two potential, positive catalysts,   consider the shares a screaming buy at this point.

Why Hasn’t the Stock Climbed on the Company’s Streaming Success?

ViacomCBS is making headlines with the success of its Paramount+ (subscription-based) and PlutoTV (ad-supported) streaming platforms.

Investors, though, continue to treat this stock as if it’s still an  “old media” play. In the first quarter,  the company’s streaming revenues were up 65% year-over-year. But its revenues from streaming accounted for just 11% of its overall sales.

Indeed, its broadcasting (CBS) and cable networks units (MTV, Nickelodeon, Showtime) continue to generate the lion’s share of its revenue.

Given the initial success of Paramount+ and PlutoTV,  ViacomCBS looks primed to successfully make the full pivot from old media to new media. On the other hand, the company may face big challenges as competition heats up in the streaming arena.

Tech names like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) still have the first -mover advantage, as both bet big on streaming way before the big media companies did. Not to mention that some media conglomerates like Disney (NYSE:DIS) have made up for lost time and built up impressive subscriber bases.

To top it all off, AT&T’s (NYSE:T) WarnerMedia unit is merging with Discovery Networks (NASDAQ:DISCA, NASDAQ:DISCB). In short, a year or so from now, ViacomCBS will be a small fish in a big pond.

That’s not exactly a great position. But don’t take this to mean that the stock is “doomed” or even set to languish at today’s prices. It still has two solid pathways to higher prices.

More on the Stock’s Two Potential, Positive Catalysts

As mentioned above, there are two  potential, positive catalysts that can push VIAC stock higher. First,  although the sector is getting crowded, its streaming platforms could continue to generate strong revenue growth.

Secondly, as streaming becomes a larger and larger piece of the company’s revenue mix, investors may stop viewing the conglomerate as a broadcast and cable name that  could become obsolete due to cord cutting.

As a result, the stock could soar on a combination of increased earnings and multiple expansion. For example, ViacomCBS today trades for 10.3 times analysts’ average  2021 earnings per share estimate of $4.08.

Even if the conglomerate’s EPS fails to come in much higher than $4.08 in the upcoming quarters, investors could start viewing ViacomCBS as less of an “old media” play and more of a “new media” play. Consequently, the shares’ forward multiple would likely expand.

And if its forward P/E  climbs to a still-low 15 times, its share price would rise to $61.20, over 30% above today’s price (assuming analysts’ average EPS estimate doesn’t change).

And one of the larger media conglomerates could decide to snap up ViacomCBS. Recent headlines suggest that Comcast (NASDAQ:CMCSA) could be a possible suitor for it,

But the pool of potential buyers is deep. Amazon, Apple (NASDAQ:AAPL), or even Netflix could want Viacom/CBS’ content library. And, as is par for the course with takeovers of publicly-traded companies, those holding VIAC stock today would likely get bought out at a 20%-30% premium above today’s price.

The Bottom Line on VIAC Stock

To be clear, ViacomCBS may not have much chance of getting back above $100 per share. It probably only reached that price because of Archego’s big  bet on it, just prior to the latter fund’s blowup. Yet ViacomCBS still has two clear paths to climb by at least 10%.

With the conglomerate’s risks more than factored into its current low valuation, consider VIAC stock a clear buy at today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.