The Latest CBS Drama Series Is Playing Out On The Board, Not On TV

CBS Corporation CBS's move to file a lawsuit against its own parent company, National Amusements, has one of two outcomes -- both of which are a potential negative for the stock, according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Andy Hargreaves maintains a Sector Weight rating on CBS.

The Thesis

CBS' lawsuit against National Amusements will either "entrench" CBS' management and the existing asset base or result in a high degree of management disruption, Hargreaves said in a research note. Both of these outcomes not only increases operational risk, but impacts its ability to generate outsized profit growth.

Even if CBS wins the lawsuit against its majority shareholder, it will gain a temporary restraining order that would allow the board of directors to issue incremental voting stocks to dilute National Amusements voting power from 80 percent to 17 percent, the analyst wrote. If CBS on the losing end, it will likely result in increased operational risk through a re-merger with Viacom, Inc. VIAB, which appears to be National Amusements' ultimate objective as it's also a major shareholder of the movie studio.

CBS says in its complaint it's being run by CEO Leslie Moonves and "one of the most accomplished and successful" executive teams in the media business. The company's stock, however, has "significantly underperformed" its peers from 2012 through 2017 and its "insistence on superiority" should be questioned.

The battle between CBS and its parent company "seems likely to focus their attentions on victory over each other in the near term" which doesn't bode well for CBS' operational performance.

Price Action

Shares of CBS were trading higher by 0.75 percent early Tuesday morning after closing at $53.65.

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