This giant media company just topped analysts’ estimates by $0.06 per share, earning $0.78 for its second quarter.
CBS Corporation (CBS)
from Argus Weekly Staff Report
CBS closed its exchange offer for CBS Outdoor Americas shares on July 9. In all, 44.7 million CBS shares were tendered and accepted in exchange for 97 million shares of CBS Outdoor stock.
We think the Outdoor exchange offer is a positive for CBS in that it provides cash for share repurchases, reduces CBS’s exposure to the cyclically sensitive advertising market, and frees the higher-growth/higher margin broadcast and cable video assets from the drag of the low-growth/low-margin Outdoor assets. Going forward, we also expect high-margin revenue streams from digital distribution, retransmission consent, and reverse compensation from affiliates to create a more stable revenue mix for the company as a whole.
Nonadvertising revenue accounted for 42% of revenue in 2013, up from 38% in 2011, as management has delivered on this stated strategic priority. The split-off of CBS Outdoor should further increase the percentage of higher-margin non advertising spending.
In the second half of 2014, CBS should also benefit from the midterm election cycle and the accompanying increase in political ad spending.
CBS shares are down 10% year-to-date compared to a 5% gain for the S&P 500 on a total-return basis. The stock’s trailing enterprise value/EBITDA multiple of 10.1 is below the peer group average of 12.2, but above the high end of the five-year average range of 7.9-9.4.
Given the ramifications of the CBS Outdoor split-off, we are revising our EPS forecasts. Our new 2014 EPS estimate is $3.34 and our 2015 forecast is $3.74. Our estimates imply EPS growth of 11% over the next two years, one point below our long-term growth rate forecast. We are maintaining our BUY rating to a target price of $76.
Jim Kelleher, CFA, Argus Weekly Staff Report, 212-425-7500, www.argusresearch.com, August 11, 2014