Analysts' Choice: CBS Shows Off Growth Channels

12/26/2016


  Recent Price
$65
  Dividend
$0.72
  Yield
1.1%
  P/E Ratio
16
  Shares (millions)
446
  Long-Term Debt As % Of Capital
62%
  52-Week Price Range
$65.57 - $46.86

CBS ($65; CBS) is making a habit of market leadership. The broadcaster kicked off the fall TV season with the No. 1 new drama, Bull, and the No. 1 new comedy, Kevin Can Wait. Through Dec. 11, CBS led all television networks in prime-time ratings, reaching more than 7.6 million households, according to Nielsen.

Of course, the TV business has grown far beyond weekly shows. Secondary revenue sources include online and other digital-viewing platforms. In the September quarter, CBS' streaming revenue jumped 40%. Advertising accounted for about half of CBS' revenue in the nine months ended September, with content licensing and distribution (26%) and fees from affiliates and subscribers (21%) contributing the rest.

Concerns about the Redstone family's control of roughly 80% of CBS' voting shares hang over the stock. However, the company's growth seems to have quieted critics — the shares have risen 13% over the last year, a period when CBS grew its per-share profits 24% and operating cash flow 29%. The consensus projects profit growth of 22% in the December quarter and 8% next year — a solid target considering the likely spin-off of a radio unit. We are upgrading CBS to the Focus List this week. The stock is also a Long-Term Buy.

Program lineup

The entertainment unit (60% of revenue in the nine months ended September, 44% of operating income), which includes U.S. and global broadcast networks, production studios, and online properties, delivered revenue growth of 8% and profit growth of 21% in the first nine months of 2016. CBS Television Network distributes content through more than 200 U.S. affiliate stations. Top-rated shows include NCIS, Bull, 60 Minutes, and Blue Bloods. CBS has 13 of the 25-top-rated programs, and the three highest nonfootball shows.

Key growth drivers for the future include internet streaming; CBS already partners with Netflix ($127; NFLX), Amazon.com ($771; AMZN), and Comcast ($71; CMCSa). Competition and creativity abound in the digital-TV world, and CBS' strong ratings and global footprint have it positioned to grab a big piece of future initiatives by both its existing customers and companies nobody has heard of — yet.

CBS' cable business (29% of revenue, 26% of earnings) includes the popular Showtime and CBS Sports networks. Cable operations and the Simon & Schuster publishing unit (5%, 3%) are not likely to drive CBS' growth in coming years.

Local television stations (12%, 16%) and radio (8%, 8%) round out CBS' businesses. The company plans to spin off its radio operations into a publicly traded company next year.

Switching channels

In recent months, CBS has commanded the wrong kind of headlines, as the Redstones dealt with an executive power struggle and considered a merger with former parent company Viacom ($35; VIAb). However, deal talks ended earlier this month, hopefully refocusing investors on CBS' investment appeal.

An annual report for CBS Corp. is available at 51 W. 52nd St., New York, NY 10019, (212) 975-4321, www.cbs.com.

CBS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '16
1.05
vs.
0.88
4%
58.22
-
50.53
16 - 13
Jun '16
0.93
vs.
0.74
2%
57.89
-
48.55
16 - 14
Mar '16
1.02
vs.
0.77
10%
51.26
-
41.36
15 - 12
Dec '15
0.92
vs.
0.77
6%
52.17
-
38.51
17 - 12
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
13.89
3.31
0.60
63.95
-
38.51
19 - 12
2014
13.81
2.96
0.51
68.10
-
48.83
23 - 16
2013
15.28
3.02
0.48
64.06
-
37.43
21 - 12
2012
14.09
2.55
0.44
38.32
-
27.18
15 - 11
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
72
79
89
55
69
74

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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