Analysts Like CBS For 2019 Comeback

It’s high-risk and “not for the faint of heart,” but CBS Corporation CBS could emerge from a tumultuous 2018 as a high-reward investment in the new year, according to some sell-side analysts. 

The media company is likely to find a new CEO early in the year, analysts say. Another positive: the possibility of a Viacom merger.

The Analysts

RBC Capital Markets Steven Cahall said CBS is well-priced after a December drop in price that didn’t have a clear cause.

“We think it's time for risk-tolerant investors to get aggressive on CBS,” Cahall said in a Wednesday note.

RBC has an Outperform on CBS with a $70 price target.

Stephens upgraded CBS to from Equal-Weight to Overweight (Volatile) with a $58 price target. 

“We believe the company can continue to post solid results driven by underlying unit growth and stronger pricing despite continued fragmentation of viewers and ratings headwinds, and that investor sentiment will improve as investors put the turmoil of 2018 in the rear window,” Stephens analyst Kyle Evans said in a Wednesday note. 

The Thesis

Both analysts said merger talks could get going this year once the company moves to replace Leslie Moonves, who left as CEO last year amid allegations of sexual misconduct that roiled the company.

As the media landscape continues to consolidate, CBS could emerge as a merger or acquisition target, said Stephens' Evans.

RBC's Cahall said a full-time CEO will be announced in the first quarter, followed by merger talks with Viacom, Inc. VIA.

“We think that deal makes increasing sense for both sides and gets done at highly accretive terms,” the analyst said. “CBS may have above-average headline risk but the reward potential is also impressive.”

Other catalysts cited by Stephens and RBC include: 

• Further over-the-top success, with CBS benefitting from licensing the success of its own streaming services, CBS All Access and Showtime. CBS said last year that it was increasingly focused on streaming services as central to its future.
• Retransmission and skinnybundle revenue: Evans points out that CBS is in position to be able to raise rates for cable and satellite companies to carry its programming.
• 2020 Political Spending: the expectation of a contentious political cycle in 2020 should drive strong political ad revenue.

There are risks, both analysts said. 

If there’s an economic downturn, CBS could suffer from slowed consumer spending because it relies on advertising and consumer spending on content for revenue. Ad market weakening would be problematic. Another possible downside that Cahall noted: more management turmoil.

Price Action

CBS was trading up 3.2 percent at $45.11 at the time of publication Wednesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For January 2, 2019

Les Moonves Won't Get A Penny Of His $120M CBS Severance Package

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