Two firms downgraded Viacom (VIA,VIAB) and one upgraded CBS (CBS) after National Amusements, which owns majority stakes in both companies, asked them to call off their merger talks yesterday.

NEWS: National Amusements, the family firm of Sumner Redstone and his daughter Shari, which owns majority stakes in both CBS and Viacom, asked both companies to call off their merger talks. Viacom responded by saying that it would no longer pursue a merger with CBS. Last week, CBS CEO Les Moonves said that the talks between the companies, which had begun in September at National Amusement's request, were still in the early stages.

VIACOM DOWNGRADES: RBC Capital analyst Steven Cahall downgraded Viacom to Underperform, the firm's equivalent of a sell rating, from Sector Perform. In the wake of the cancellation of the merger talks, investors will probably once again value Viacom's stock based on the company's earnings, Cahall stated. Viacom has significant short-term and long-term earnings pressures, as it is "structurally challenged" without CBS, according to the analyst. Specifically, the company "faces more cord cutting risk, ratings risk and movie slate risk than (its) peers," Cahall warned. It will be difficult for the company to return to growth, he added. Wedbush analyst James Dix downgraded Viacom to Neutral from Outperform. Following the cancellation of merger talks, Viacom's stock is likely to enter "a lower and more volatile trading range," Dix cautioned. "Challenges" facing the company's TV networks are likely to weigh on the shares, which could drop to the low $30s, stated the analyst, who cut his price target on the stock to $39 from $46.

BMO SAYS BUY CBS: CBS' stock is more attractive without the potential of a merger with Viacom, wrote BMO Capital analyst Daniel Salmon, who upgraded the shares to Outperform from Market Perform. CBS has no exposure to the basic cable bundle, and advertising should account for only about 45% of its revenue in 2018 after the spin off of its radio assets is complete, down from 65% in 2010, Salmon estimated. Moreover, Salmon, noting that The New York Post reported today that Verizon (VZ) could be interested in buying CBS, says that the TV network could be a "very attractive takeover target." AT&T (T) could look to buy CBS after the telecom giant acquires Time Warner (TWX), Salmon believes. The analyst raised his price target on CBS to $70 from $63.

PRICE ACTION: In early trading, CBS rose 1% to $62.79 and class B Viacom shares rose 1.5% to $35.31.