PreMarket Prep Stock Of The Day: ViacomCBS

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

The recent rotation into value stocks has benefitted several issues in the media sector. One of the biggest winners in the sector that's giving some of its gains back is ViacomCBS Inc. VIAC.

In The Red For 2020: After ending 2019 at $41.97, the issue went the opposite way of the S&P 500 index falling to $34.18 to start 2020. It went with the index in February, falling to $24.81, and the bottom fell out in March when it hit $10.10. That marked the lowest level for the issue since September 2009, when it bottomed at $9.74.

Although it caught a nice bid for the remainder of the year, it still had a negative return of 11% ending 2020 at $37.26.

One Year Win Streak Off March Low: It's not often that an issue has a 12-month winning streak, but that's exactly what ViacomCBS is in the midst of. After a solid start to the year ($37.26 to $48.50), it caught some momentum in February ($48.50 to $64.49). Once it breached its former all-time high from April 2017 ($70.10), it raced for triple digits and got there.

Last week it hit a new all-time high ($101.97) and posted its all-time closing high in Monday’s session in triple digits at $100.34.

The Dreaded Stock Offering: Before the open, the company announced an offering of $2 billion of Class B common stock and $1 billion of Series A mandatory convertible preferred stock.

As so common with companies that have a huge price appreciation in share price, they do a stock offering to reap the benefits. Whereas a biotech company may use the proceeds to market a new drug or conduct more extensive research, others may use the funds to pay down debt.

No price information on the offerings has been announced at publication time.

How Low Will They Have To Go? While the company explores the pricing options with its bankers, one thing that's for sure is that it's going to be lower than Monday’s all-time closing high price of $100.34.

With such a rapid price appreciation just this month alone (February closing price of $64.49), buyers may be scare at these nosebleed levels.

Not Sticking Around To Find Out: One important thing about an offering is that if the company wants to unload some stock, it may be a good time to exit the issue. Who knows better than the company itself of the true value of its share price.

As a result, several investors are cashing out in Tuesday’s session. After a lower open, it found support just above its low from March 18 ($90.15) at $90.30 and reversed course. So far, it has yet to reach the bottom end of Monday’s range ($96.21) as $94.30 stands as the high for the session as of 12:45 p.m. EST.

Moving Forward: When the price of the offering is announced, it can sometimes provide a floor for the issue. In other words, the price may act as support as other investors bank on the buyers of the offering gets a fair discount to its previous share price. However, once a price is announced and the issue is unable to hold that level, there may be considerably more downside price action forthcoming.

The discussion on the issue from Tuesday’s show can be found here:

Photo by ViperSnake151/Wikimedia.