NEW YORK (MONEY) - Leading media companies are undervalued nowadays, according to many market watchers. So it's not surprising that some analysts believe big media conglomerates should consider breaking up to realize their hidden value.

Viacom has actually tried this strategy. The company spun off CBS television and radio, including Showtime and Paramount Parks, effective as of the beginning of this year. Viacom retained Paramount Pictures and its hot cable networks like Comedy Central, MTV and Nickelodeon.

So far, shareholders haven't seen any benefit. The precise terms are complicated, but basically for every two shares of old Viacom you owned, you got one share of new Viacom and one share of CBS.

On that basis, the value of the two new stocks is down about 7 percent from where old Viacom was when the split was announced. Moreover, the new stocks taken together are up only 5 percent or so from where old Viacom was right before the split was completed.

All in all, the short-term results of the breakup have been negligible.

The absence of a short-term benefit doesn't mean that the split-up is a bad idea, however. Corporate breakups normally take at least a year to show real gains.

There are two key issues that determine whether a break-up makes sense.

The first is whether the new businesses benefit strategically from being separated -- because they are more flexible or can make advantageous deals with other companies.

The second issue has to do with cost-cutting. Splitting up a conglomerate typically allows companies to slash some of their overhead.

Both Viacom and CBS reported pro forma fourth-quarter earnings last week, and neither turned in stellar reports. The companies' results were distorted somewhat by accounting adjustments for the separation.

On a comparable basis, though, Viacom's profits were down about 12 percent from a year earlier and fell short of analysts' expectations. CBS wrote off more than $9 billion -- a quarter of its book value -- but earnings at least surpassed forecasts by a few cents a share.

The real question, however, is what happens to the two stocks over the next few years. The majority of the analysts who follow the companies give them a weak positive rating. But that may be underestimating the companies' potential.

Viacom still faces many of the same problems it had before the spin-off. The Paramount movie studio, for instance, had a bad fourth quarter thanks to some lackluster films like "Yours, Mine and Ours." Nonetheless, by shedding its slower-growing CBS divisions, Viacom has raised its growth potential to 15 percent a year.

At its current price of $40.16 a share, Viacom (Research) trades at 20 times this year's estimated earnings and 17 times projected 2007 results. That's not particularly cheap, but it could turn out to be a very attractive entry price if Viacom is able to realize its potential growth.

CBS (Research) is the opposite kind of story. At $24.80 a share, the stock trades at less than 15 times this year's earnings and less than 14 times next year's. The reason for this low price/earnings ratio is that CBS is expected to turn in less than 10 percent earnings growth annually.

The company does plan to sell its theme parks and also return cash to shareholders through dividends. Expectations are low for CBS, and if independence allows the broadcaster to surpass minimal growth expectations, the current price will turn out to be a bargain.

Splitting up will allow both halves of the old Viacom to be the best independent companies they can be. But whether that leads to superior performance and higher share prices remains to be seen.

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