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CBS Corp (CBS) Down 3.9% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for CBS Corporation (CBS - Free Report) . Shares have lost about 3.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

CBS Corp Beats on Q2 Earnings & Revenue Estimates

CBS Corp posted second-quarter 2017 adjusted earnings of $1.04 per share that beat the Zacks Consensus Estimate of $0.97 and increased 12% from the year-ago quarter. On a reported basis, including one-time items, the company delivered earnings of $0.14 per share substantially down from $0.93 posted in the prior-year period.

Moreover, total revenue of this diversified media conglomerate came in at $3,257 million that came ahead of the Zacks Consensus Estimate of $3,114 million and rose 9% year over year.

Affiliate and subscription fee revenue of $848 million grew 16% on the back of 25% jump in retransmission revenues and fees from CBS Television Network affiliated stations, as well as digital subscription services. Content licensing and distribution revenue surged 12% to $1,056 million gaining from higher volume of television licensing sales. Total advertising revenue climbed 4% to $1,299 million owing to the broadcast of the semifinals and finals of the NCAA Tournament on the CBS Television Network.

Operating income increased 3% to $669 million, however, operating margin contracted 140 basis points to 20.5%.

Segment Results

Entertainment revenue increased 12% to $2,184 million driven by higher affiliate and subscription fees that surged 38% on account of rise in station affiliation fees and subscriber growth at CBS All Access. Content licensing and distribution revenue jumped 12% attributable to rise in television licensing activity. Advertising revenue grew 6% owing to the broadcast of the semifinals and finals of the NCAA Tournament on the CBS Television Network. The segment’s operating income declined 1% to $346 million.

Cable Networks’ revenue jumped 7% to $571 million primarily owing to rise in affiliate and subscription fees on account of growth of the Showtime digital streaming subscription offering and increase in international television licensing sales of Showtime original series. The segment’s operating income increased 11% to $253 million mainly due to revenue growth.

Publishing revenue of $206 million jumped 10% year over year primarily due to increase in print book and digital audio sales. Bestselling titles for the quarter included Lord of Shadows by Cassandra Clare and I Can't Make This Up by Kevin Hart. Operating income came in at $28 million, up from $26 million in the year-ago period due to higher revenue.

Local Media revenue rose 4% to $412 million on account of increase in retransmission revenue. Advertising revenue dropped 2% due to fall in political advertising sale. However, this was mitigated by CBS's broadcast of the semifinals and finals of the NCAA Tournament. Operating income declined 2% to $127 million.

Other Financial Details

CBS Corp. ended the quarter with cash and cash equivalents of $170 million, long-term debt of $8,898 million and shareholders’ equity of $2,627 million. In the quarter, net cash flow provided by operating activities was $219 million and capital expenditures incurred were $41 million. The company generated free cash flow of $190 million.

During the quarter under review, CBS Corp. bought back 4.7 million shares for $300 million. As of Jun 30, the company had $3.3 billion remaining at its disposal under its share buyback program. The company expects to repurchase over $1 billion worth of shares during the second half of 2017.

Bottom Line

In 2016, the company crossed $1 billion mark in revenues from retransmission consent and reverse compensation. The company aims to achieve $2.5 billion of revenues from retransmission and reverse compensation by 2020.

The company’s over-the-top subscription services CBS All Access and Showtime OTT subscriber base is likely to surpass 4 million combined before the end of this year. The company has the target of reaching 8 million subscribers base together by 2020. Management now intends to expand CBS All Access in the international market, and it will first start with Canada in the first half of 2018.

Meanwhile, Showtime gained from the successful return of Twin Peaks, which enhanced OTT subscriptions. The company is also gradually expanding its Showtime brand overseas with new deals to license its entire portfolio in India, Hong Kong, France, Taiwan and others.

Moreover, with the launch of Showtime's streaming service; online news channel, CBSN; and over-the-top service, CBS All Access, the company is generating incremental revenue. Management is also planning to roll out online streaming sports channel in line with that of CBSN sometime in the later part of this year.

CBS Corp. is also well poised to monetize its content licensing and distribution as it signed deals with YouTube TV, Hulu, fuboTV, and DIRECTV NOW. Management hinted that third-quarter total revenue for Local Media is pacing up low-single digits.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower.

CBS Corporation Price and Consensus

 

CBS Corporation Price and Consensus | CBS Corporation Quote

VGM Scores

At this time, the stock has a subpar Growth Score of D, however its momentum is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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