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Viacom (VIA.B): Downgrades to 3 STARS (hold) from 4 STARS (buy)

Before 6 cents of charges, fourth-quarter EPSof 35 cents, vs. pro forma 42 cents, on 9% fewer shares, lags our estimate by 13 cents and the Street's by 12 cents. The earnings shortfall could be further magnified by film volatility, and the fourth quarter included a 2-cent film write-down charge. The Paramount unit may also see more challenges, at least through the firsthalf, as Viacom remains in talks to sell DreamWorks library. We were surprised by comments suggesting the cable scatter ad market is slowing, and think Viacom's 2006 EPS guidance of $1.95-$2.00 reflects this tempered view. Our 12-month target price falls $5 to $45, on a relative p-e-to-growth basis.
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