Analysts Waiting To See Whether ViacomCBS Will Do Better Than Viacom And CBS

Wall Street analysts are taking a wait-and-see approach to the long-anticipated merger CBS Corporation CBS-Viacom, Inc. VIAB merger, questioning whether the combined companies will create a more profitable global streaming business together than each could have built on their own.

The media giants on Tuesday announced an all-stock merger aimed at competing in a business that’s shifting as cord cutters move to watching streamed programming.

The Analysts

BMO Capital Markets analyst Daniel Salmon downgraded CBS from Outperform to Market Perform and lowered the price target from $60 to $51.

Barrington Research analyst James Goss reaffirmed an Outperform rating on CBS with a target price of $60. Goss kept an Outperform rating on Viacom stock and a $35 price target.

Credit Suisse analyst Douglas Mitchelson has an Outperform rating and a $66 price target on CBS and is Neutral with a $33 target price on Viacom.

See Also: CBS And Viacom Finally Announce A Merger Deal

The merger should remove some uncertainty around the separate stocks, said Mitchelson, and could create incremental value beyond cost synergies.

“Still, with the deal just signed, the operational strategy and corporate structure has not been flushed out with the details to model with confidence the revenue synergies that would attract new investors,” Mitchelson wrote in a note.

His bottom-line question: “Will ViacomCBS Be More than Viacom and CBS?”

Morgan Stanley’s Benjamin Swinburne doesn’t have a rating on CBS or Viacom, but also said questions remain.

In addition to whether the two companies can be more profitable than on their own is the question of whether the merger improves the earnings power of Viacom’s U.S. cable networks, which include MTV, CMT, VH1, the Nickelodeon networks, Comedy Central and BET, Swinburne said.

“To shift Viacom's cable networks from a declining earnings business to a growing one, while at the same time augmenting CBS's earnings power, the planned ViacomCBS must capitalize on its combined scale and brands to build a profitable, global streaming business,” Swinburne wrote. “That opportunity exists in both the subscription and advertising spaces.”

More M&A?

Salmon was more bearish on the prospects for the combined company.

“While we’re intrigued by the differentiated message of ViacomCBS building a larger third party licensing business when competitors are pulling back, we think the next 12 months are more likely to be focused on near-term content investment and potentially more M&A news to come,” Salmon wrote.

Barrington’s Goss agreed there could additional M&A talk, but was more bullish because of CBS's leadership in streaming services, which he said should help create new monetization models for all the new content coming in from Viacom.

“The new ViacomCBS Inc. will boast established beachheads in a number of important sectors in which it holds a leadership position,” Goss wrote in a note.

Price Action

After falling Tuesday afternoon, both stocks were dropping on Wednesday. CBS down 7.9% to $44.83 per share, while Viacom was off 8.1% to $26.82.