CBS Ad Revenue Struggles

Mired in a secular and cyclical slowdown, we think CBS Corp.’s (CBS - Analyst Report) revenue and earnings will trough in late 2009 on lower comps, cost cutting, and the elimination of more than one-third of its poorest-performing mid-market radio stations. Longer term, we think CBS’ recent string of divestitures will strengthen operations as the company rationalizes its portfolio with better margin and higher growth businesses.

The company is looking to offset the secular radio slowdown by creating and acquiring higher-growth, higher-margin businesses in three key areas: Interactive, Content, and Outdoor. At current valuations, we expect the stock to generate total shareholder returns in line with the market as dividends supplement our expectations of flat-to-low-single digit capital appreciation (the stock currently yields a generous 6.6%).

The weak advertising market is hitting all of CBS’ business. We forecast low-double digit EBITDA decline in 2008, which would be worse were it not for 2008 political ad spending. Ratings at CBS’ radio stations have improved, and the management feels positive about the division as it aggressively rolls out digital HD radios but has far to go to translate ratings into meaningful revenue gains.

Sumit Singh contributed to the report.

Read the full analyst report on CBS