Shares of CBS (CBS) are in the spotlight once again this morning as Cowen analyst Doug Creutz downgraded the stock to Market Perform citing "too many unquantifiable variables". This comes after the company's board met yesterday to evaluate the recent allegations made against CEO Les Moonves, which have surfaced as he is locked in a legal battle over control of CBS with the company's largest shareholder, National Amusements, owned by Shari Redstone, who also controls media company Viacom (VIA ; VIAB).
OUTSIDE COUNSEL: Last night, CBS announced that its board of directors is in the process of selecting outside counsel to conduct an independent investigation. "No other action was taken on this matter at today's board meeting," CBS' board stated. Additionally, the board determined to postpone CBS Corporation's 2018 annual meeting of stockholders that was previously scheduled to be held on August 10. Earlier yesterday, Deadline had reported that Les Moonves was "contemplating" stepping aside from his CEO role as investigations into allegations of misconduct continue.
COWEN MOVING TO THE SIDELINES: In a research note to investors this morning, Cowen's Creutz downgraded CBS to Market Perform from Outperform and lowered his price target on the shares to $50 from $69. While the analyst noted that he continues to like the company's assets and strategic positioning, between the control fight with National Amusements, the potential for a recombination with Viacom, and the allegations of sexual harassment at the company, there are "too many unquantifiable variables" for him to keep an Outperform rating on the stock. Given the scope and detail of the allegations, the fact that some sources were willing to go on record, and the fact that the allegations go beyond CEO Les Moonves and extend to the overall culture of the company, this is a serious matter for the board, he contended. Nonetheless, Creutz pointed out that his downgrade is not based on any evaluation of the claims but rather a reflection of the fact that the added overhang of an investigation of uncertain length with an uncertain outcome will make share outperformance difficult, even given the recent selloff.
Additionally, the analyst's concerns also extend to how this affects the company's fight for control with National Amusements and the Redstones, as he believes this controversy weakens the board's position. A potential result could be a recombination that ultimately places current Viacom management in charge, he argued, adding that he thinks such an outcome would likely be value destructive, with a "very, very difficult integration process." From the perspective of what would be best for CBS and its shareholders, Creutz thinks the best choice would be for Moonves to step down and immediately be replaced by COO Joe Ianniello.
PRICE ACTION: In morning trading, shares of CBS have gained almost 1% to $51.57, recovering some of their losses from yesterday.
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