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Viacom's 2005 Guidance Likely To Disappoint

Prudential Equity Group raised the fourth-quarter estimate on Viacom (nyse: VIA.b - news - people ) but noted that it expects 2005 guidance to come in under Wall Street's expectations. Prudential said Viacom's 2005 guidance "is likely to be a near-term negative for the stock." The research firm, which reiterated an "overweight" rating and $43 price target on Viacom, raised the fourth-quarter earnings estimate to 40 cents per share from 39 cents, "primarily on an increase in our estimates at the Entertainment segment." Performance in the quarter will be led by continued strength at cable networks, although Prudential has lowered expectations since a prior note on higher anticipated expenses at the segment. Viacom's 2005 guidance is more likely to be a near-term negative than a positive for the stock, Prudential said, because current consensus revenue and operating income before depreciation and amortization estimates call for 6.7% and 9.4% growth in 2005, respectively. The firm said ". In our view, public comments by current management suggest that the assets had been underinvested in during the prior regime. In addition, given that [Chairman and Chief Executive] Sumner Redstone's successor will not be chosen until 18 months to two years from now, we believe current management is hardly incented to 'knock the cover off the ball' in 2005. As a result, we think that 2005 guidance is likely to be a range for which current estimates either represent the high end of that range or are above the range altogether."
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