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We reiterate our long-term Neutral recommendation on Viacom Inc. (VIAB - Analyst Report). The company reported mixed financial results for the second quarter of fiscal 2013. While the net income beat the Zacks Consensus Estimate, revenues fell below the same.

Why Kept at Neutral?

We believe that Viacom is well positioned for long-term growth as it continues to benefit from its predominantly cable networks-based business model, hit movie releases, and monetization of contents from multiple distribution platforms. Viacom significantly improved its viewership ratings for its immensely popular Nickelodeon and MTV channels. In the reported quarter, the viewership rating was up 7% year over year compared with a stiff fall of 30% over the last one year.

Viacom is offering video-on-demand  websites to AT&T Inc. (T - Analyst Report)’s U-Verse customers, Time Warner Cable Inc. (TWC - Analyst Report) and DIRECTV (DTV - Analyst Report) subscribers to watch their content online, thereby driving their new TVEverywhere service for the years to come.Viacom immensely benefits from its agreement to distribute digital content to online video streaming companies. Management is hopeful that it will be able to expand its digital content distribution deals, both in the U.S. and internationally in the near future.

However, in the last quarter, the Filmed Entertainment segment suffered a blow due to a significant drop in the carryover and catalog revenues. At present, more than 90% of the company’s operating income is coming from its pay-TV networks. However, the U.S. pay-TV industry is facing severe challenges from online video providers.Meanwhile, the stock price has soared nearly 54% in the last year and is currently trading at the high-end of its 52-week price range. We believe Viacom is currently fairly valued.Viacom currently has a Zacks Rank #3 (Hold). 

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