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Is Viacom Different This Time? Perhaps


I remember the Viacom (VIAB - Get Report) crowd back in the day. That was a tough crowd. Traded in what was then known as "the Blue Room", aptly named because the walls were blue. The room was home to some of the trading floor's real "bid and offer" crowds. Certain crowds were known in that way, because there was really no negotiation at all in those crowds. If you did not audibly defend your clients with loud bids and offers, you got nothing done while the tape kept rolling along. The kind of crowd that either made you a hero, or sent you up to your client after the closing bell with hat in hand. Competitive? In the highest degree. Great victories. Horrible defeats. Revenge you knew was coming. Revenge that honor would demand you to seek. Everything that I truly loved about the business.

The Backdrop

On Friday morning, Viacom reported fiscal fourth quarter beats for both EPS and revenue. The revenue that printed at year over year growth of 5.1% was the firm's first growth in a year. The earnings growth at 29%, was the headiest in five.

Is Viacom different this time? Perhaps. The firm came into Friday's release reorganized, the Media Networks business line, which is the largest, but also the most sluggish in terms of performance now sliced into four units. BET Networks and Nickelodeon will operate on their own as they had already been doing. However, Paramount Network, TV Land, and Comedy Central have become one segment, while CMT, MTV, and VH1 another.

The growth in revenue was actually realized from the Filmed Entertainment Unit. That unit produced a profit this quarter, after having produced none one year ago.

The Chart

As one can see, the early morning euphoria has worn off. There should be some Fibonacci support at both the $30 and $29 levels. There are a couple of other items at work here. I am not sure if I see a saucer and handle type formation completed. There certainly is some evidence, but the base seems a little too volatile on a month to month basis. That's why I pulled this charts out this far, to show you the full year. What I know I see is a six month positive trend that really did not fit any of my Pitchfork models, so I used what is known as a Raff Regression Channel to illustrate this for you.

Do I need Viacom in my portfolio? I have enough exposure to the industry through Walt Disney (DIS - Get Report) . UBS spoke up on the stock last week. While UBS does expect an eventual merger with CBS (CBS - Get Report) , they do not see out-sized premiums for VIAB shareholders. UBS also warns of margin pressure due to a difficult renewal negotiation coming with AT&T (T - Get Report) in 2019.

My Thoughts (minimal lots)

I think that this name needs 34 in order to break out. I also would not mind taking the shares on at a discount, say at a $29-ish type price level. How about this.

-Take a pass on an outright equity purchase at this time.

-Purchase one December 21st $32.50 call (implied value: $0.88)

-Sell one March $30 put (implied value: $1.80)

What this does is give the stock a month to break out, while the trader sells protection at a discount down the road. In other words, if forced to eat these shares in March, the traders has realized a credit of 92 cents, creating a bet basis of $29.08.

(Viacom and Disney are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells VIAB or DIS? Learn more now.)