ViacomCBS Inc. (VIAC) has doubled in price since the end of October, fueled by speculators revaluing the traditional broadcaster ahead of its March entry into the crowded streaming space. Viacom and CBS merged in December 2019 to form the current operation, which was received poorly by Wall Street and investors. The combined chart slumped to a seven-year low just before the pandemic struck, which then triggered a stomach-wrenching 71% slide.
- ViacomCBS was formed by the December 2019 merger of Viacom and CBS.
- The company will launch the Paramount+ streaming service in March.
- The stock has rallied into multi-year resistance after doubling in price in less than four months.
- Six Wall Street analysts now recommend that shareholders sell the stock.
The company will launch the Paramount+ streaming service in the United States, Latin America, and international markets on March 4, entering a venue that is already overflowing with viewer choices. The service will fold in the current CBS All-Access, which has lost steam since its October 2014 release, with executives hoping the new line-up will compete forcefully with powerhouses The Walt Disney Company (DIS) and Netflix, Inc. (NFLX).
In addition to CBS All-Access, the Paramount+ service will feature more than 6,000 movies and 1,400 episodes from owned channels that include Showtime, MTV, Comedy Central, and Nickelodeon. ViacomCBS just announced a monthly subscription price of $6 per month with advertising and $10 per month ad-free. As with HBOMax, some cable, satellite, and fiber providers are cutting deals for at least a year of free service.
Not everyone is enthusiastic about the long-term outlook after outsized share price gains. UBS analyst John Hodulik downgraded ViacomCBS stock to "Sell" on Monday, noting, "In our view, share appreciation doesn't fully discount risks from cannibalization of the legacy Pay TV business and content licensing associated with the significant DTC tilt. Combined with higher cord cutting in 2021 and likely cost inflation from the NFL renewal, these issues should weigh on EBITDA/FCF and create a more challenging risk-reward at this price."
Wall Street consensus on ViacomCBS has deteriorated as well, with a "Hold" rating based upon four "Buy" and seven "Hold" recommendations. More importantly, six analysts now recommend that shareholders sell positions and move to the sidelines. Price targets currently range from a low of $29 to a Street-high $55, while the stock is set to open Tuesday's session just $1 below the high target. There's little room for upside with this elevated placement.
EBITDA – or earnings before interest, taxes, depreciation, and amortization – is a measure of a company's overall financial performance and is used as an alternative to net income in some circumstances. EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.
ViacomCBS Monthly Chart (2009 – 2021)
The new operation uses price history from the old CBS chart. The stock fell to an all-time low at $3.06 in 2009 and turned sharply higher, breaking out above 2007 resistance in the mid-$30s in 2012. The rally topped out at $68.10 in 2014, giving way to a deep slide into the mid-$30s, followed by a 2016 bounce that reached the prior high in early 2017. A breakout added just two points before reversing into a downtrend that broke range support in November 2019.
The stock plunged to the lowest low since 2009 during the pandemic decline and bounced into the second quarter. The uptick reached resistance at the 2019 breakdown in December, triggering an immediate breakout that stalled within 10 points of 2017 resistance in January. It fell about 12 points and turned higher into February but is still trading below the prior peak. There's little upside potential, given the massive double top, but declines should now hold new support in the upper $30s.
A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price falls below a support level equal to the low between the two prior highs.
The Bottom Line
ViacomCBS stock has reversed after more than doubling in price since October, while multi-year resistance should limit or deny gains in coming months.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.