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Analyst Blog

On Aug 28, 2014, we issued an updated research report on CBS Corporation (CBS - Analyst Report) following the company’s second-quarter 2014 results.

Adjusted earnings of 78 cents per share grew 4% year over year and was ahead of the Zacks Consensus Estimate of 72 cents. Aggressive share buyback activity cushioned the bottom line. However, absence of the NCAA Division I Men's Basketball Championship had a telling effect on CBS Corp’s revenues, which fell 5.4% to $3,188 million. Revenues also came short of the Zacks Consensus Estimate of $3,305 million.

Following the Outdoor Unit’s split-off, the company is focusing primarily on the shareholders. In the quarter, the company bought back 7 million shares for $411 million bringing year-to date count to 38.5 million shares at a total cost of $2.4 billion.  Also, the company increased its share repurchase authorization by $3 billion to $6 billion and announced a 25% hike in its quarterly dividend to 15 cents. The company’s shareholder friendly approach makes it an asset for yield and growth seeking investors.

Going forward, management expects second half of the year to perform better, driven by reverse compensation from affiliates, strong demand of its content, digital distribution, increasing syndication sales and retransmission consent. The company also expects CBS Television Network to be a major growth driver. Moreover, the company expects Subscription video on demand (SVOD) revenues to be considerably up in 2014 compared with 2013.

Further, CBS Corp. expects retransmission fees to hit the $2 billion mark in 2020. Currently, it expects retransmission fees to reach $1 billion by 2017 (announced earlier).  Moreover, CBS Corp. expects a good run in advertising in the second half of the year, given increase in political spending and more original programming. Also, an addition of Thursday Night National Football League (NFL) game for eight weeks will increase advertising revenue.

However, the company expects programming costs to rise in the second half due to a new agreement with the NFL and also because of the earlier mentioned addition of Thursday night NFL game for 8 weeks on CBS. Moreover, with operations on a global scale, the company remains exposed to currency fluctuations. Adding to the woes is stiff competition from other media stalwarts such as The Walt Disney Company (DIS - Analyst Report) and Viacom, Inc. (VIAB - Analyst Report).

Currently, CBS corp. is a Zacks Rank #3 (Hold) stock.

Key Picks From the Sector

Other better ranked media stocks worth consideration include Discovery Communications, Inc. (DISCB) and Disney. Both carrying a Zacks Rank #2 (Buy).

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