Earnings Scorecard: CBS Corporation

CBS Corporation ( CBS - Analyst Report ) , one of the leading media company in United States and worldwide, reported its second-quarter 2012 results on August 2, 2012. The Wall Street analysts had almost a week to ponder on the earnings results and eventually make their estimates revision. Below, we will cover the results of the company’s recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.

Earnings Report Review

CBS Corporation’s quarterly earnings of 65 cents a share surpassed the Zacks Consensus Estimate of 58 cents and jumped 12% from the year-ago quarter.

Management hinted that total revenue of $3,476 million dropped 3% over the prior-year quarter due to difficult year-over-year comparisons. The prior-year quarter, benefited from a multi-year digital streaming contract and the NCAA men’s basketball championships, which was aired in the first quarter of the current year. Total revenue also fell short of the Zacks Consensus Estimate of $3,543 million.

(Read our full coverage on this earnings report: CBS Beats on Bottom Line)

Agreement of Estimate Revision

The estimates showed multi-directional moves, reflecting conflicts between the analysts. Out of 21 estimates for the third-quarter of 2012, 7 were trimmed while 2 were revised upwards, whereas for the fourth-quarter of 2012, out of 20 estimates, 8 moved up and 3 went down, in the last 7 days.

Most of the estimates were trimmed for the third quarter following the plunge in advertising and content group revenue in the second quarter 2012. Advertising revenue declined 3% to $2,142 million, whereas content licensing and distribution revenue slipped 8% to $816 million.

However, some of the analysts believe that CBS is comfortably positioned to drive revenue growth in the coming quarter through its strategic initiatives and operating efficiencies, and thus moved their estimates upwards.

For the fourth-quarter 2012, majority of the analysts moved up in regard to their estimates. The presidential elections will be accretive to the company’s results during the year-end. Moreover, revenues from retransmission continue to grow at a good pace. Further, the company is increasingly getting reverse compensation from its affiliates, marking a new source of revenue.

For the fiscal 2012 and 2013, out of 25 estimates, 15 were increased for both the fiscal, in the last 7 days.

Clearly, a positive sentiment was palpable among majority of the analysts for fiscal 2012 and 2013. Management remains optimistic and expects growth momentum to continue in fiscal 2012 based on reverse compensation from affiliates, strong demand of its content and online video streaming, retransmission consent, and political advertising. In 2013, AFC Championship Game, the Super Bowl and the Grammys will beneficial to CBS. Management expects reverse compensation to surpass $100 million in 2013. Subsequently, an upward revision in estimates was observed.

Magnitude of Estimate Revision

For the third-quarter 2012, the estimate fell by a penny to 62 cents, whereas for the fourth-quarter the estimate inched up by a penny to 75 cents over the last 7 days.

During the same period, the Zacks Consensus Estimate for fiscal 2012 and 2013 increased by 4 cents and 5 cents to $2.55 and $2.89, respectively.

Our View

CBS, which competes with News Corporation ( NWSA - Analyst Report ) and Walt Disney Company ( DIS - Analyst Report ) , is striving to add diverse revenue streams to become less susceptible to the economic cycles. The retransmission fees, syndication sales and streaming deals have been non-advertising-driven revenue and will become the key growth drivers for the top and bottom lines. CBS is eyeing more than $250 million in retransmission fees in fiscal 2012.

Based on the company’s ability to generate healthy free cash flow and returning excess cash to shareholders’, CBS Corporation carries Zacks #2 Rank implying short-term Buy rating for the next 1-3 months. We reiterate our long-term ‘Outperform’ recommendation on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/