The former Viacom and CBS completed their merger of equals on Dec. 14, forming the new ViacomCBS Inc. (VIAC). It's an odd coupling, given the same companies split up in January 2006, but it makes sense after considering the poor performance of both equities in recent years. However, despite Wall Street marketing hype, investors are walking away from the new company, skeptical that it can compete successfully in the age of steaming entertainment.
Viacom's entertainment assets posted significant market share losses in the last decade, with the company failing to tap the streaming industry's huge potential while the controlling Redstone family declared war on each other. CBS has clawed its way back during the same period, launching the successful All-Access, but its archive of "cop shows" isn't that appealing to a streaming-obsessed younger generation after they've binge-watched the "Star Trek" spin-offs.
Analysts have been positive on the stock since the merger, with Buy ratings from BoA/Merrill, Needham, and Deutsche Bank. Only Credit Suisse has downgraded the stock, pointing to deteriorating metrics. Hedge funds run by John Paulson, Larry Robbins, Dan Loeb, and Seth Klarman have opened or added to positions during the same period. Even so, the combined chart posted a seven-year low on Feb. 3, highlighting investor skepticism that raises the stakes ahead of the company's Feb. 20 earnings report.
VIAC Long-Term Chart (2006 – 2020)
The merger uses the old CBS price chart, starting at the 2006 split-up. The subsequent uptrend topped out at $35 in 2007, giving way to a garden-variety correction that accelerated into a death spiral during the 2008 economic collapse. It posted an all-time low at $3.06 in March 2009 and turned higher, carving a multi-wave bounce that completed a round trip into the prior high in 2012. A 2013 breakout caught fire, lifting the stock to $68.10 in the first quarter of 2014.
The subsequent decline relinquished significant ground into the October 2015 low at $38.51, ahead of a symmetrical bounce that posted an all-time high just two points above the 2014 peak in April 2017. Sellers then took control once again, carving a declining channel that reached the 2015 low in December 2018. Support held, generating a weak bounce that stalled at a lower high in July 2019. It has been all downhill since that time, highlighted by a September double top breakdown that confirmed a major downtrend.
A November bounce tested new resistance and reversed just five days after the merger, giving way to renewed selling pressure that broke the October low about three weeks ago. The stock is now trading at the same level as December 2012, ignoring the bullish table pounding by Wall Street and the institutional crowd. Sadly, there's no reason to take exposure with a price chart that looks this deadly, especially during a roaring bull market.
VIAC Short-Term Outlook
A Fibonacci grid stretched across the 2009 into 2017 uptrend places the double top near the .50 retracement, which was broken decisively in the fourth quarter of 2019. Ominously, this massive pattern calculates a measured move target close to the 2009 low in the single digits, warning sidelined investors to avoid exposure unless a series of positive news catalysts lifts price back above the red line.
The monthly stochastic oscillator hasn't reached the overbought zone in nearly three years, highlighting extreme weakness. It has dropped into the oversold zone three times during this period and hit the most extreme reading since 2008 in November 2019. Even so, the recent bullish crossover is hard to believe, given multiple failures in recent years. Given the risk, bottom fishers are likely to find better bargains in other corners of the market universe.
The Bottom Line
ViacomCBS is trading below the level posted when CBS and Viacom merged in December, indicating that investors are walking away despite upbeat Wall Street commentary.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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