UBS Downgrades CBS, Says Long-Term Headwinds Could Follow Moonves Exit

CBS Corporation CBS CEO Les Moonves' departure could be followed by long period of limited upside, according to UBS.

The Analyst

UBS analyst John Hodulik downgraded CBS from Buy to Neutral and lowered the price target from $72 to $60.

The Thesis

Moonves' exit creates potential headwinds given his position in the industry, Hodulik said in a Monday note. (See his track record here.) 

They include:

• The loss of talent.
• An inability to successfully replenish content.
• Reputational risk for the company due to the nature of the sexual misconduct scandal. 

The leadership transition comes as CBS is investing in direct-to-consumer initiatives, the analyst said.

“We expect these investments will continue to weigh on cash flow and margins. In the near-term, advertising could be more challenging in 4Q (despite the strong upfront) due to continued NFL headwinds,” Hodulik said.

Hodulik does not anticipate any strategic acquirers for CBS assets, while a deal with Viacom, Inc. VIAB seems substantially more likely, he said: “Press reports have suggested CBS could be the target of multiple potential strategic acquirers; however, we believe this is unlikely." 

Despite CBS' content and No. 2 premium cable network, the company's publishing and TV holdings and linear broadcast platform would likely scare off acquisitive tech or internet companies, according to UBS. 

"While the [Viacom] settlement would require approval of two-thirds of independent board members for the next two years, we continue to believe a merger with Viacom is likely and takes a step forward given these changes.”

Price Action

CBS shares were up 0.51 percent at $55.48 at the time of publication Tuesday. 

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