Channel Check: CBS Stock Could Top Out After 10% Rally
NEW YORK (TheStreet) -- CBS (CBS) - Get Report may continue to advance from the September low, but the rally looks like it will be part of a bigger top formation.
We mostly start our analysis from a shorter time frame and then go out to a longer time frame. With CBS, we want to start with the long-term picture, above, and drill down. CBS made a pretty robust five-year rally from the early-2009 low. Beginning in 2014, the outlook shifts. Prices peak and break down below the 40-week, or 200-day, moving average. The On-Balance-Volume (OBV) line, a sign of accumulation or distribution, breaks its uptrend and begins a decline. The Moving Average Convergence Divergence (MACD) oscillator gives a crossover sell signal.
That's not all. In 2015, so far, CBS staged a rally that did not go to a new high but rather stopped short of the 2014 highs. Prices rallied above the 40-week moving average, but that did not last, and the slope of the moving average never turned positive. The OBV line has continued lower, and the MACD oscillator made another bearish crossover from a lower high. In the most recent months, the slope of the 40-week moving average has turned negative.
In this daily chart, above, we can see a five-month decline for CBS, with prices bottoming late compared to other names, and finally turning up. Unlike other stocks we have been following in recent weeks, CBS does not make a retest of its September low. The OBV line creeps up with the price action, but volume is not significantly higher. The 50-day moving average has been broken on the upside and is just now flattening. Looking at the slow stochastic indicator in the lower panel, we can see that prices are overbought, meaning that they have gone up too fast. Chart resistance is not far above the market in the $50 to $55 area.
Conclusion: CBS has made a significant top formation the past two years and the current rally from the September low looks like it is a rally within this top formation.
Separately, TheStreet Ratings team rates CBS CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate CBS CORP (CBS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, unimpressive growth in net income and feeble growth in the company's earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 5.6%. Since the same quarter one year prior, revenues slightly increased by 1.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, CBS CORP's return on equity exceeds that of both the industry average and the S&P 500.
- 40.76% is the gross profit margin for CBS CORP which we consider to be strong. Regardless of CBS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.31% trails the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Media industry average. The net income has decreased by 24.4% when compared to the same quarter one year ago, dropping from $439.00 million to $332.00 million.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, CBS has underperformed the S&P 500 Index, declining 13.77% from its price level of one year ago. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full analysis from the report here: CBS