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Analyst Blog

On Nov 27, 2013, we reiterated our long-term Neutral recommendation on media conglomerate CBS Corporation (CBS - Analyst Report) with a target price of $61.50. This was based on the company’s strong third-quarter 2013 results along with strategic initiatives and growth catalysts. However, stiff competition, adverse currency fluctuations and vulnerable advertising revenues pose a serious threat to this Zacks Rank #3 (Hold) stock.

Why Neutral?

CBS Corporation’s sustained focus on increasing subscription based revenue channels remains a long-term growth driver. We expect the company’s growth momentum to continue in 2013 and 2014 as well based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent.

Alongside, CBS continues to benefit from its streamlining deals. Significantly, the company strengthened its ties with Netflix, Inc. (NFLX - Analyst Report) by extending its multi-year streaming video deal for select library content. Moreover, it entered into a deal with Amazon.com Inc. (AMZN - Analyst Report). These measures facilitate CBS to monetize its content.

Moreover, CBS has been actively managing its cash flow by generating healthy free cash, making prudent capital investments and enhancing shareholders’ return. The company has been active in adding diverse revenue streams to hedge against economic cycles. This is substantiated by the company’s expansion into the fastest growing live gaming and eSports market.

CBS Corp is currently witnessing steady top and bottom-line growth as evident from its strong third-quarter 2013 results. The quarterly earnings rose 19.0% to 76 cents a share, while net sales increased 11.3% to $3,634.0 million.

On the flip side, softness witnessed in the economies of primary markets poses a serious threat to advertising revenues, the primary source of revenue for CBS Corp. Further, the highly fragmented nature of the media industry can weigh its top line down. Also, with operations in international markets, the company remains prone to fluctuations in exchange rates.

Other Stocks to Consider

Another better-ranked stock in the media sector includes Pearson plc (PSO - Snapshot Report), which carries a Zacks Rank #2 (Buy).

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