Les Moonves’ resignation as CEO of CBS (NYSE:CBS) shouldn’t have come as a surprise to most investors. In the short-term, the news should hurt CBS stock.
That’s because allegations of this nature always envelope you, whether they are ultimately proven to be true or not, tainting the organization until action is taken by the board. CBS is no different.
Long-term, it’s hard to know where CBS stock is headed. It depends on who takes Moonves’ place. On an interim basis, COO Joseph Ianniello will handle his former bosses’ responsibilities until a permanent replacement is found.
The Upside of a New CEO
With Les Moonves out of the way, the legal bickering between CBS and the Redstone family’s holding company, National Amusements Inc., which owns 79% of the broadcaster’s voting shares, ends the litigation between the two parties putting the focus squarely on adding value for all CBS shareholders.
As a result of the agreement, CBS has agreed not to pursue the dilution of National Amusements control position from 79% down to 17%.
Also, National Amusements has agreed to end its push for a merger between Viacom (NASDAQ:VIAB) and CBS for at least two years (National Amusements also owns 79% of Viacom) creating a possible opportunity for the board to sell the broadcaster to the highest bidder.
Shari Redstone heads up National Amusements, the Redstone family’s holding company. By agreeing to put a CBS-Viacom merger on hold for two years, she’s essentially saying that her family is okay with a sale of CBS.
Back in January 2016, I suggested that CBS stock could rise 50% from where it was trading.
“Nothing has changed over at CBS. The same fundamentals exist in its business today as were present more than two years ago when a lethargy surrounding CBS stock took hold of investors and hasn’t let go,” I wrote in 2016. “I believe it’s unfounded and expect CBS stock to test its all-time high of $68.10 in the next 12 to 18 months.”
CBS stock established a new all-time high of $70.10 in April 2017, 14 months later. Then the Moonves-Redstone feud kicked in; its stock’s been on a downhill slide ever since.
Except for the issues surrounding Moonves, CBS remains a well-run company and should be attractive to potential buyers, especially if they’re able to name the CEO.
I would imagine an offer for CBS would come in the high $60s, low $70s, perhaps even higher.
The Downside of a New CEO
As I said above, a potential buyer would probably like the idea of buying CBS with no CEO in place, so they could pick their own person to lead the “new” CBS.
However, you also don’t want to leave the position unfilled for too long because it’s possible that an attractive offer won’t be forthcoming, which means you’ve spent 6-12 months exploring a sale with no one in charge of the big picture.
That’s never good for any stock, and it wouldn’t be good for CBS either. Investors like certainty. A vacant CEO position for more than half a year doesn’t give that impression.
That said, I’m sure there are lots of people who would be interested in the top job including its current COO.
The Verdict on CBS Stock
As I write this, CBS stock is down about 3%, pretty much as expected. Moonves might not be a model citizen, but he was a good CEO.
However, long-term, I don’t think you can go wrong owning CBS stock because I see it getting sold for a lot more than $55 a share. So, I would buy some on the latest correction and hold a little cash in reserve should it drop into the $40s.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
