Printed on July eleventh, 2022 by Felix Martinez
Berkshire Hathaway (BRK.B) has an fairness funding portfolio value greater than $360 billion as of the top of the 2022 first quarter.
Berkshire Hathaway’s portfolio is stuffed with high quality shares. You possibly can ‘cheat’ from Warren Buffett shares to search out picks for your portfolio. That’s as a result of Buffett (and different institutional buyers) are required to periodically present their holdings in a 13F Submitting.
You possibly can see all Warren Buffett shares (together with related monetary metrics like dividend yields and price-to-earnings ratios) by clicking on the hyperlink under:
Observe: 13F submitting efficiency is completely different than fund efficiency. See how we calculate 13F submitting efficiency right here.
As of March 31, 2022, Buffett’s Berkshire Hathaway owned simply over 68.9 million shares of Paramount World (PARA) for a complete market worth exceeding $1.67 million. Paramount World at present constitutes over 0.5% of Berkshire Hathaway’s funding portfolio.
This text will totally look at Paramount World’s prospects as an funding immediately.
Enterprise Overview
ViacomCBS Inc., now referred to as Paramount World, is an American multinational media conglomerate primarily based in New York Metropolis. The company was shaped by way of the re-merger of CBS Company and Viacom on December 4, 2019, the 2 created from the cut up of the unique Viacom in 2005. The corporate’s content material manufacturers embody CBS, Showtime Networks, Paramount Footage, Nickelodeon, MTV, Comedy Central, BET, and CBS All Entry.
The corporate has six income segments, the place Promoting, Affiliate, and Content material Licensing are probably the most important income sources. Paramount is an $18.2 billion market capitalization firm that generated greater than $28.5 billion in income for 2021.
The corporate reported first-quarter outcomes for Fiscal 12 months (FY)2022 on Could 3, 2022. The corporate reported revenues of $7,328 million for the quarter vs. $7,412 million in 1Q21, or a 1% lower year-over-year. This was as a result of TV Media section seeing a discount in income of 6% year-over-year. The working revenue reported was $775 million for the quarter, a big lower of 49% in comparison with the $1,528 million the corporate reported in 1Q21. The corporate added 6.8 million world streaming subscribers, overwhelmingly led by Paramount+.
PARA has reached over 62 million subscribers within the quarter and achieved 95% year-over-year development in streaming subscription income. The promoting section noticed a income improve of 59% for the quarter. This was attributable to Pluto TV and Paramount+ development pushed by elevated pricing and impressions on each companies. Non-GAAP EPS of $0.60 was reported, lowering by 61% in comparison with $1.52 per share reported within the first quarter of 2021.
Consensus estimates anticipate the corporate’s earnings-per-share to be $2.60 for FY2022. This might be a lower of 25.3% in comparison with FY2021. We are going to use the FY2022 estimate of $2.60 for our valuation calculation.
Supply: Investor Presentation
Progress Prospects
Over the past decade, Paramount had an earnings compound annual development charge (CAGR) of three.5% and a unfavourable 10.0% CAGR over the previous 5 years. With Viacom and CBS’s merger accomplished, the corporate is among the most important content material producers and suppliers globally. This permits Paramount to be in a strong place as content material demand continues to develop.
We estimate a five-year anticipated development charge of two% as administration continues to combine each firms. The web Margin elevated for FY2021 to fifteen.9%, in comparison with an FY2020 internet margin of 9.6%. The corporate needed to freeze its dividend throughout 2018 making ready for this merger. Earlier than that, it had a 5-year dividend development of seven.6%. We anticipated the corporate to begin to develop its dividend at a development charge of two% over the following 5 years.
Supply: Investor Presentation
one other development driver could be, in fact, the expansion of the corporate Paramount+ subscribers. As you may see, the corporate has been rising its subscriber base properly.
Supply: Investor Presentation
Aggressive Benefits & Recession Efficiency
Paramount’s aggressive benefit is its invaluable content material, akin to those talked about within the Overview part, and being in a fantastic place to be one of many largest producers of latest content material sooner or later. Nonetheless, this firm is just not recession resilient as its companies and merchandise are a luxurious. In the course of the Nice recession of 2008-2009, the corporate’s share worth misplaced 83.7%) from peak to trough. The corporate additionally reduce its dividend from $1.06 per share to $0.20 per share, an 81.1% dividend reduce.
Nonetheless, the present dividend payout ratio is low, at solely 37%, primarily based on FY2022 earnings. Consensus estimates that free money stream (FCF) for FY2022 might be $1.09 per share, which supplies a dividend payout ratio of 88.5% primarily based on FCF. The corporate at present has a debt-to-equity ratio (D/E) of 0.9, which is sweet. The corporate additionally sports activities a credit standing of BBB.
One other aggressive benefit that the corporate has is its manufacturers of reveals.
Supply: Investor Presentation
Valuation & Anticipated Returns
Over the previous decade, Paramount shares have traded with a median P/E of 13.2. Nonetheless, over the previous 5 years, it has averaged a P/E of 9.6. Given present headwinds, we are going to use a P/E of 10 for our honest worth estimate. This represents a (1.1)% draw back as the present P/E of PARA is 10.6 primarily based on the 2022 EPS estimate of $2.60 per share.
One other valuation metric to search for is the corporate dividend yield common historical past. The present dividend yield is 3.8%, in comparison with the corporate 5 yr common of two.2%. As you may see, primarily based on the dividend yield, the corporate seems to be to be undervalued.
Remaining Ideas
Paramount affords a low projected whole return. as talked about above, we forecast 4.3% annualized returns for the following 5 years because the reasonable development and overvaluation make Paramount unattractive at present costs. Thus, we charge PARA as a Maintain.
Different Dividend Lists
Worth investing is a invaluable course of to mix with dividend investing. The next lists include many extra high-quality dividend shares:
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