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Viacom Inc. (VIA.B) is slated to release its third quarter 2011 results on Friday, August 5, 2011, before the opening bell. The current Zacks Consensus Estimate for the third quarter is pegged at 84 cents per share, representing an annualized growth of 23.82%.

With respect to earnings surprises over the trailing four quarters, Viacom has outperformed the Zacks Consensus Estimate in all the four quarters. The average earnings surprise was a positive 8.43%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Recap

On April 28, 2011, Viacom reported its second quarter 2011 financial results. Quarterly net income from continuing operation was $376 million or 63 cents per share compared with $255 million or 42 cents per share in the prior-year quarter.

However, adjusted (excluding debt extinguishment cost) EPS of 72 cents was significantly higher than the Zacks Consensus Estimate of 61 cents.

Total revenue in the quarter was $3,267 million, up 20% year over year and was well above the Zacks Consensus Estimate of $2,984 million. Significant revenue growth was primarily attributable to improved performance by the Media Networks and Filmed Entertainment segments.

Agreement of Estimate Revisions

In the last 30 days, out of the 10 analysts covering the stock, 1 analyst increased the EPS estimate for the third quarter of 2011 while 1 reduced the same. Similarly, for the fourth quarter of fiscal 2011, 2 out of the 10 analysts covering the stock increased their EPS estimates while none moved in the opposite direction.

For fiscal 2011, in the last 30 days, out of the 10 analysts covering the stock, 1 analyst increased the EPS estimate but 1 analyst revised the estimate downward. Likewise, for fiscal 2012, out of the 9 analysts covering the stock, 1 analyst increased the EPS estimate while 1 reduced the same.

Magnitude of Estimate Revisions

During the last 30 days, the Zacks Consensus Estimate was a penny above the current estimate of 84 cents per share for the third quarter of 2011. Likewise, for the fourth quarter of 2011, the Zacks Consensus Estimate was a penny short of the current estimate of $1.02 per share. Similarly, for fiscal 2011, the Zacks Consensus Estimate was a penny below the current estimate of $3.59. For fiscal 2012, the Zacks Consensus Estimate was 3 cents short of the current estimate of $4.07.

Earning Surprises

In the previous quarter, Viacom reported EPS of 72 cents, which was well above the Zacks Consensus Estimate of 60 cents. The current Zacks Consensus Estimates for the ongoing quarter contains a 1.19% upside potential while for the fourth quarter, it reflects a 2.94% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimate upside potentials are 1.11% and 1.72%, respectively.

Our Recommendation

Viacom is well positioned for long-term growth as it continues to benefit from its predominately cable networks-based business model, strong affiliate fee revenue growth, global brands, multi-platform content, and is one of the fastest growing traditional ad media. Moreover, hit movie releases during this summer will drive box-office success going forward.

However, stiff competition from other media companies like News Corp. (NWS) and Time Warner Inc. (TWX) along with sluggish economic growth may act as headwinds for the stock, going forward.

We thus maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks #2 Rank, implying a short-term Buy rating on the stock.

Source: Viacom Earnings Preview