CBS Stock Poised for Growth Following Potential Viacom Merger
Explore how CBS stands to benefit significantly and deliver strong returns to shareholders if its merger with Viacom goes through.
CBS Corporation is actively pursuing the acquisition of Viacom, Inc., a major player in the entertainment industry that has faced challenges due to internal family disputes and strategic missteps over the years. Viacom has struggled to adapt to the millennial trend of cutting cable subscriptions, impacting key networks like Comedy Central, MTV, and Nickelodeon. Meanwhile, CBS continues to outperform many of its broadcast competitors but faces challenges in rejuvenating its aging viewer base.
Viacom’s stock plummeted to an eight-year low in November but showed some recovery by the second quarter of 2018, although it remains below key resistance levels such as the 200-day exponential moving average (EMA). CBS has recognized Viacom’s vulnerabilities, proposing an initial takeover bid below market value. This all-stock offer may cause tension between the two companies, but Viacom’s weakened bargaining position could ultimately tip the scales in CBS’s favor.
By integrating Viacom’s diverse content portfolio, CBS could significantly enhance its entertainment offerings and expand revenue streams, particularly through its streaming platform, All Access, launched in October 2014. This service recently surpassed 2 million subscribers, boosted by the popularity of "Star Trek Discovery," yet it still trails far behind industry giant Netflix, which boasts over 100 million viewers.
CBS’s long-term stock chart from 2006 to 2018 shows a dynamic journey: starting in the mid-$20s, peaking just above $35 in 2007, plunging to a low of $3.06 during the 2008 financial crisis, and then recovering to previous highs by 2012. A strong breakout in 2013 propelled shares to $68.10 by March 2014, followed by a decline driven by shifting viewer habits toward online streaming. The stock found stability in the mid-$30s by September 2015 and saw a resurgence attempt in early 2017, though it faced resistance and a subsequent downturn. Recent technical indicators hint at a potential buying cycle gaining momentum, fueled by ongoing Viacom merger talks.
On the short-term front, CBS’s stock experienced a sell-off that bottomed out at key Fibonacci retracement support levels in 2017, setting the stage for a recovery. However, resistance near the upper $50 range could limit near-term gains even if the merger proceeds. On-balance volume (OBV) metrics suggest strong speculative interest despite a price decline, indicating potential for a rally if the deal materializes.
Key Takeaway
CBS’s negotiations to merge with Viacom could create a formidable force in the broadcasting space, enhancing competitiveness and opening new growth avenues. Analysts are optimistic that the combined entity will be better positioned to tackle industry challenges and capitalize on emerging opportunities.
Disclosure: At the time of writing, the author held no positions in the securities mentioned.
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