What the heck is going on with CBS Corporation (NYSE:CBS) right now? Shares were finally starting to move in the right direction in early May, but it’s almost as if the legal teams involved right now are stock-chart technicians. In other words, the legal mess is timing up perfectly with a bearish-looking CBS stock chart.
But before we get to the technicals and what they mean for CBS stock, let’s digest the latest news on CBS Corporation.
CBS, Legally Speaking
It’s an ugly situation with CBS. The company was seeking a restraining order on its parent company, National Amusements, in order to prevent them from rewriting CBS’s bylaws and ousting its board members. On the flip side, National Amusements was trying to get a judge to stop CBS from cutting down its voting power.
Currently, National Amusements holds 79% voting power in CBS, a figure the CBS is trying to get down to less than 20%. All of this is going on while there’s a potential re-merger between CBS and Viacom, Inc. (NASDAQ:VIAB), a deal that the National Amusements wants to get done. On June 1, a shareholder suit was filed against National Amusements.
Ugh…this is becoming an eye-rolling headache. There’s clearly a power struggle and a lot of noise around the company’s internal operations. Despite its solid growth and reasonable valuation, there’s a lot of headache that comes with CBS stock right now.
Why opt for a name like CBS when investors can go with a company like Twenty-First Century Fox Inc (NASDAQ:FOX, NASDAQ:FOXA) that’s seeing interest from Walt Disney Co (NYSE:DIS) and Comcast Corporation (NASDAQ:CMCSA).
For that matter, why not buy DIS or CMCSA as well? They also have decent growth and reasonable valuations without the hassle of an internal legal battle.
Valuing CBS Corporation
CBS is churning out really solid growth, with analysts expecting 7.3% sales growth this year and 6.5% next year. That goes along with almost 20% earnings expectations for 2018 and 12% for 2019. All this for about 9.5 times earnings, while CBS stock also kicks out a 1.5% dividend yield.
So should we take a pass? That’s up to each individual investor. CBS is cheap, given its growth profile over the next few years. But in this case it’s cheap for a reason and I hate to see (and read about) legal disputes between owners in a stock I own.
There could be value here for patient investors. However, I would simply rather go with another stock without the drama — even if it comes with a slightly higher valuation. The chart below also lends a hand as to why I don’t want to own CBS right now.
Trading CBS Stock
Click to Enlarge
Above is a five-year weekly chart that gives a pretty good view on how CBS has been trading. Support near $48 held earlier this month, but so did a retest of its downward resistance (blue lines). That channel formed after multi-year trend-line support gave way last summer (black line).
So what now?
Near $50 and CBS Corporation is sort of in no man’s land. Bulls and bears alike need to see a more decisive break in the action. A retest of $48 support or a breakout over downward resistance would be a good place to start.
There’s value in CBS , but there’s also a lot of headache that comes with the name. It would be one thing if there wasn’t value in other names, like CMCSA or DIS, and CBS was the only play in town. But DIS and CMCSA also do have attractive fundamental aspects without as much drama.
It’s not to say that CBS can’t rally; in fact, it very well could. But right now CBS stock needs to give us a little more to work with before we can go long or short at this point.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
