Imperial Capital Says CBS Is 'The Cleanest Name In The Space,' Viacom A 'Value Trap'

CBS Corporation Common Stock CBS and Viacom, Inc. VIAB are a tale of two media stock trajectories, according to Imperial Capital. While CBS is a "top idea" at Imperial, the firm said Viacom has been a bearish story since 2014. 

The Analyst

Imperial Capital's David Miller initiated coverage of CBS with an Outperform rating and $71 price target.

The analyst initiated coverage of Viacom's stock with an Underperform rating and $26 price target.

Analyst Sees No Secular Headwinds For CBS

CBS does not operate a portfolio of cable networks, but oversees the core CBS network — the No. 1-ranked network in the U.S. "any way you slice it," Miller said in the initiation note.

The other channel, Showtime, is a pay network that consumers freely purchase without it being "crammed down your throat," the analyst said. The company as a whole doesn't face the same secular headwinds that its peers do, including Viacom, he said. 

CBS remains "well ahead of the curve" in offering consumers a streaming platform, Miller said. The company has 5.05 million subscribers across CBS All Access and Showtime OTT, while new services such as CBSN and CBS Sports HQ are finding success, he said. 

Imperial's $71 price target is based on a target multiple of 12 times the firm's 2019 EPS estimate of $5.98, which is 9 cents above consensus estimates.

CBS is "the cleanest name in the space," and investors have no reason to be concerned with cord-cutting or cord-shaving trends, Miller said.

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

Viacom Weak Since 2014 

The bullish case for Viacom's stock picked up momentum in mid-2011 and ended in early 2014, when the company failed to reverse ratings declines at its flagship networks, including Nickelodeon, VH-1 and MTV, Miller said in a separate initiation note. Since 2014, Viacom's woes have "gotten progressively worse" due to a combination of stagnant programming, development, the departure of top executive talent and the absence of any live or hit series on par with "Walking Dead" or "Game of Thrones," the analyst said. 

Viacom's Paramount Pictures study has been an "albatross" given a nearly 400-percent decline in EBITDA in fiscal 2016 and an EBITDA loss in fiscal 2017 on the back of multiple commercial failures, Miller said. Little evidence exists to suggest the worst is over in light of a lack of visibility on Viacom's film slate, he said. 

Despite Viacom being "easily the cheapest" stock within the large-cap media sector and the third-cheapest stock in the entire S&P 500 universe, it is a "value trap" at its core, according to Imperial Capital. 

Price Action

CBS shares were trading down 0.29 percent at the time of publication Thursday morning, while Viacom was slipping 1.43 percent. 

Related Link: Bernstein: 'Almost 0%' Chance Of A CBS-Viacom Reunion