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Moonves Roadmap Lights A Fire Under CBS Stock, Selling Radio

At media firm CBS ( CBS ), it’s out with the old and in with the new. CBS stock has been on a roll since CEO Les Moonves moved up the ladder to chairman on Feb. 3; the stock touched an eight-month high Wednesday. At CBS’ investor day in New York on Tuesday, Moonves served notice that the media firm may be doing things differently and may sell off assets while at the same time eyeing acquisitions. What’s out? Moonves surprised analysts by disclosing that the media firm will put CBS Radio on the block. What’s new? CBS expects to generate some $800 million in revenue from stand-alone Internet video streaming services by 2020. With gains on Wednesday, CBS stock has climbed 16% in 2016. It’s up 13% since Moonves took over as chairman from Sumner Redstone on Feb. 3 and 27% since the media firm reported earnings on Feb. 11. Shares in CBS were up nearly 3.7% to 54.54 in early afternoon trading in the stock market today . On the TV side of the business, Moonves made clear that CBS plans to invest in content. CBS has 17 pilots in the pipeline this year and owns at least half of 16 of the shows. CBS plans to offer more shows exclusively on its streaming “All Access”  website.  CBS also offers an online-only Showtime product. “The key theme of the day was the focus on increased content ownership given more OTT (over-the-top) options globally,” said Stifel analyst Benjamin Mogil in a research report. Asked about rumors that CBS is interested in cable network Starz , Moonves said, “We look at everything.” Here’s a sampling of analyst reaction to the CBS investor day, its first since 2011: “The long-term roadmap for CBS’s fundamentals gained a lot more clarity yesterday and supported our thesis that CBS is the best mix shift opportunity in media,” said Daniel Salmon, analyst at BMO Capital Markets. CBS says that it expects $2.5 billion in “retransmission” programming fees in 2020, up from its earlier outlook of $2 billion. Piper Jaffray analyst Stan Meyers wrote: “Management believes by 2020 advertising revenues will represent less 40% of revenues as new initiatives take hold, down from 50% today and 65% a few years ago.” Andy Hargreaves, analyst at Pacific Crest Securities, has a neutral rating on CBS stock. “The overarching theme of the analyst day was a deeper push into production and ownership of content. While this is a quality business, we believe distribution will dominate economics as supply of content increases in an Internet world.” IBD’s Media-Diversified group ranks just No. 101 out of 197 industry groups. Aside from CBS, companies in that group with high IBD Composite Ratings include Scripps Network Interactive ( SNI ) and Walt Disney ( DIS ).

Western Digital Now A Storage Powerhouse With SanDisk Acquisition

Western Digital ( WDC ) shareholders approved a $16 billion deal to acquire SanDisk ( SNDK ), creating a formidable competitor in both disk drives and flash-chip storage. “We like the merger,” Monika Garg, an analyst at Pacific Crest Securities, wrote in a research note. “The deal makes strategic sense for both companies. For Western Digital, it removes an overhang from the flash-chip impact on hard disk drives. Western Digital would then own the best flash assets and supply for its solid-state drive business.” SanDisk is a leading provider of chips used for data storage in a wide variety of devices, including smartphones, tablets and PCs. The deal will help SanDisk, which has a strong retail business, to move up the ladder into the enterprise market, where Western Digital is strongest. Western Digital gets the ability to offer chip-based storage in areas where its disk drive technology is losing ground. Western Digital and SanDisk combined had revenue of about $20 billion in 2015. Western Digital is the largest provider of disk drives, ahead of Seagate Technology ( STX ), though the market has struggled as PC sales decline. Western Digital and Seagate have pursued the flash chip market. “This combination brings together two tremendous companies and cultures ideally positioned to capture the growth opportunities in our rapidly evolving industry,” said Steve Milligan, Western Digital CEO, in a statement announcing the deal. China regulators are the last remaining obstacle. China has a say in the transaction, based on Western Digital investments in that country. RBC analyst Amit Daryanani said in a research note that he expects China to approve the deal. More than 90% of votes cast were in favor of approving the issuance of Western Digital stock in connection with the acquisition, Western Digital said. SanDisk said 98% of its shareholders approved the deal. “The combination of SanDisk with Western Digital will enable the combined company to offer the broadest portfolio of industry-leading, innovative storage solutions to customers across a wide range of markets and applications,” said SanDisk CEO Sanjay Mehrotra in a statement . SanDisk shareholders will receive $67.50 in cash and 0.2387 Western Digital share for each share of SanDisk stock. That amounts to about $79 per share, based on Monday’s closing price of $48.19 for Western Digital. The deal was valued at $86.50 a share, or about $19 billion, when it was first announced on Oct. 21. That changed when China’s Unisplendour pulled its plan to make a $3.8 billion investment for a 15% stake in Western Digital on Feb. 23, amid a U.S. government inquiry. By terminating the investment, Unisplendour triggered the alternative deal. Western Digital anticipates seeing $500 million in total cost synergies, not including tax savings, from the acquisition. Institutional Shareholder Services, a leading independent proxy advisory firm, issued a report on Feb. 29 recommending Western Digital shareholders approve the deal and said the transaction could attain $1.1 billion in cost synergies within 12 months of closing. Shares of Western Digital and Seagate were down 1.5% each in midday trading in the stock market today , near 45 and 76, respectively. Needham analyst Richard Kugele said in a research note that the focus will now quickly shift to Western Digital being able to “streamline two organizations and extract synergy savings while maintaining the strong cash flow of the traditional core to finance the debt.” Kugele has a strong buy on Western Digital stock, with a price target of 90. He said flash-based storage systems are proving critical for the front end of data centers, and increasingly serve as primary storage.

Valeant Loses Wall Street’s Confidence As Bad News Piles Up

Wall Street analysts gave scathing reviews to the management of Valeant Pharmaceuticals International ( VRX ) Wednesday, a day after a disastrous Q4 report and guidance cut the stock price in half. “We admit upfront, we have been humbled by our stock call on Valeant, which we have defended despite the continuing spate of bad news, as we believed that despite the noise surrounding the company, much of the fundamental businesses had been performing well,” wrote Nomura analyst Shibani Malhotra as she downgraded the stock to neutral from buy. “Despite the fact that our new PT (price target) for $60 represents 79.1% potential upside, we do not expect Valeant shares to outperform the market near term, as we have lost confidence in management’s ability to understand its own business and to provide reliable guidance.” Other analysts echoed the loss of confidence, including Canaccord Genuity’s Corey Davis, who cut the price target to 40 from 75 while maintaining a hold rating. “The weak guidance was likely the last straw for many investors, underscoring the numerous risks that we had highlighted in our recent downgrade,” Davis wrote in his research note. “Further, the threat of default on Valeant’s debt raises additional questions about what is behind the delayed 10-K filing.” Davis added that Valeant was unlikely to risk a credit default by missing its 10-K filing deadline if only a minor restatement of financials is in the works, raising the possibility that yet more bad news is coming. But Rodman & Renshaw analyst Raghuram Selvaraju wrote that a default seems unlikely. “We anticipate that the firm should be in a position to file its 10-K by April of this year and that its creditors would not invoke the cross-default clauses in Valeant’s debt agreements,” Selvaraju wrote in a research note. Selvaraju was one of the few left maintaining a buy rating on the stock, but he lowered his price target to 118 from 150. Jefferies analyst David Steinberg cut his price target in half, to 53, while TD Securities analyst Lennox Gibbs hacked his target to 45 from 110. Nonetheless, Valeant stock was rebounding in the stock market today , up 2.5%, above 34, in midday trading. So was Endo International ( ENDP ), whose stock tumbled 23% Tuesday likely because it’s headed by former Valeant executive Rajiv De Silva; it was up 8%, near 35, midday Wednesday. Specialty drug maker Mallinckrodt ( MNK ) continued to sink as Citron Research short seller Andrew Left, whose research helped blow open the Valeant scandal last year, continued the attacks on Mallinckrodt that he started in November, saying the company “ makes Valeant look like a bunch of choirboys .” Mallinckrodt stock was down 11% Wednesday after sliding 14.5% Tuesday.