CBS Corporation (CBS)
Many wondered what fate would become of traditional media companies like CBS given the explosion of internet based content, news and social media over the past decade. I think it’s safe to say that the masses did not expect these companies to thrive, let alone report record earnings, but on May 1st, CBS proved that it can do both.
“As great as these last few years have been, this quarter tops it all,”- “What’s most exciting is that we are poised to benefit from all of the strategic actions we’ve taken – and continue to take – for a long, long time. We have the best content and the right management to ensure success, and as a result, I have never been more confident about our Company’s future than I am today” noted CBS Chairman Sumner Redstone on their conference call.
Mr. Redstone has been chairman of CBS since they and Viacom split apart in 2005. CEO Leslie Moonves also pointed out the fact that CBS has been extremely successful in augmenting their business to capitalize on the new media landscape.
CBS saw advertising revenues increase 5%, with growth in network primetime and sports advertising. The “NCAA Tournament” gave the quarter a comparative boost being that it aired during Q1 2012 versus Q2 in 2011. That could take away from next quarters results…Affiliate and subscription fee revenues also rose 7%, led by growth at Cable Networks and higher retransmission revenues.
Company Description & Financial Profile
CBS Corporation, together with its subsidiaries, operates as a global, diverse mass media company. CBS has operations in virtually every field of media and entertainment, including broadcast television (CBS, The CW), cable television (Showtime, Smithsonian and CBS Sports Networks), local television, television production and syndication, radio, advertising on out-of-home media (CBS Outdoor), publishing (Simon & Schuster), interactive media (CBS Interactive), licensing and merchandising (CBS Consumer Products), video/DVD, motion pictures (CBS Films) and socially responsible media (EcoMedia).
CBS is a large-cap ($21.4 billion) company that has a trailing P/E ratio of 15.5, which is above the average media industry P/E ratio of 15.4, but below the S&P 500 P/E ratio of 17.5. The forward P/E for the next earnings period is below 13.5. CBS became a Zacks Rank 1 Strong Buy on May 4th.
Earnings & Expectations
As stated, the recent report was strong; CBS saw revenues of $3.9 billion up 12% compared to Q1 2011, operating income came in at $642 million up 47% for the year which generated 54 cents in diluted EPS, a leap of 86% of the same period one year ago.
CBS also refinanced 700 million in debt (senior notes) from 6.75% down to 3.375%, which should amount to an annualized net interest expense savings of $22 million. They continued their share repurchase program, bringing the shares acquired total to 51.2 million at an average cost of $25. This leaves approximately 60% more or $1.71 billion worth of shares left to purchase under the current authorized program.
CBS is expected to earn $0.59 per share this quarter and $2.45 in FY2012 according to the Zacks Consensus Estimate. CBS reports Q2 earnings on August 7th. Currently there are 17 analysts that rate CBS Corporation a buy, no analysts rate it a sell, and seven rate it a hold. Of the analysts who cover CBS, the consensus is for the company to grow earnings by 26.2% in the current year (FY2012) and roughly 14% in FY2013.
Market Performance & Technicals
CBS has about doubled in price since its October lows near $17. The stock has maintained momentum above its 50 day moving average since mid-October; the 50 day moving average now stands at $32.12, just below the current price of $32.90.
This level will be key support for CBS in the short term and if CBS can hold it, may provide a bounce for the stock and a reassurance of its bullish momentum. Watch the 20 day moving average of $33.02, as it’s moving closer towards the 50 day. A cross below the 50 could also signal a change in CBS’s bullish trend.
CBS has exceeded the S&P 500’s performance by 21.79% in the past year and almost 8% in the past 3 months. The recent correction in CBS stock puts it ahead of the S&P’s returns by only 2.26% for the last month, but the cheaper shares may be attractive here. Watch the technicals in the short term.
Jared A Levy is the Senior Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.