CBS Is A Buy Amid M&A Uncertainty, Bernstein Says In Upgrade

CBS Corporation CBS's ongoing boardroom drama revolving around a potential merger with Viacom, Inc. VIAB will likely continue to unfold and create volatility in shares — but that doesn't mean investors shouldn't be aggressive on the stock, according to Bernstein. 

The Analyst

Bersntein's Todd Juenger upgraded CBS from Market Perform to Outperform with a price target lifted from $56 to $65.

The Thesis

CBS' boardroom drama was action-packed last week, starting with CBS' parent company National Amusements on Wednesday changing the TV company's bylaws to require a supermajority of 90 percent of board votes to issue a special stock dividend, which would dilute the existing structure.

A Delaware court denied CBS' attempt to proceed with a special stock dividend on Thursday — but the board met anyway and voted 11-3 to proceed in a symbolic vote.

The special stock dividend "almost certainly won't happen," but at the very least the vote shows the "overwhelming" board support for such a move Juenger said in the upgrade note.

The analyst named four possible paths going forward for CBS:

• CBS is acquired by someone, which Juenger views as being very positive.
• CBS continues as a standalone entity with the current management team, also a positive.
• CBS continues as a standalone company with a new management team, which Juenger views as a negative.
• CBS merges with Viacom, something the analyst sees as very negative. 

The likelihood of CBS merging with Viacom, while technically possible, is unlikely to happen, the analyst said. Given CBS and Viacom's mutual controlling shareholder, there are "very special rules" that would need to be followed, including the support of an independent special committee, which it does not have.

The remaining three options essentially balance each other out in terms of risk to the stock, and an unfavorable path forward would price CBS' stock at $50, which implies minimal downside, Juenger said. A favorable outcome could send shares higher to $65, the analyst said. 

Price Action

CBS shares were trading higher by 1.2 percent early Monday morning.

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