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Will a Strong Content Slate Aid CBS This Earnings Season?

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CBS Corporation is slated to report fourth-quarter 2018 results on Feb 14.

In the last reported quarter, the company’s adjusted earnings of $1.24 per share beat the Zacks Consensus Estimate by a couple of cents and increased 11.7% from the year-ago quarter. It beat the consensus mark in the trailing four quarters, delivering an average positive surprise of 4%.

Revenues increased 2.9% from the year-ago quarter to $3.26 billion and beat the consensus mark of $3.25 billion.

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $4.17 billion, which indicates year-over-year growth of 6.3%. Moreover, the consensus mark for earnings has been steady at $1.53 per share over the past seven days indicating year-over-year growth of 33%.

CBS Corporation Price and EPS Surprise

CBS Corporation Price and EPS Surprise | CBS Corporation Quote

Let’s see how things are shaping up prior to this announcement.

Digital Streaming Services to Aid Top Line

CBS fourth-quarter 2018 top line is expected to benefit from recurring and incremental revenue primarily from its over-the-top (OTT) services and international content licensing.

CBS’ sustained focus on increasing direct-to-consumer (DTC) streaming revenues is a positive. In the soon-to-be reported quarter, the company launched its third free streaming service, Entertainment Tonight (ET) Live, which showcases content like news and celebrity interviews and lifestyle to name a few along with original programming.

The service, which is available as a standalone app and within paid CBS All Access service, is expected to aid ad dollars and boost subscriber base owing to ET’s brand popularity. Notably, ET TV shows boast daily viewers of about 5 million and more than 70 million U.S. users access it on social platforms on a monthly basis.

Additionally, CBS is benefiting from its sports OTT service, Sports HQ, as demand for programs is on the rise. The company is making more shows and selling more content to third-party distributors.

Moreover, digitals news service, CBSN, is expanding its presence on virtual multichannel video programming distributor (MVPDs), including its deal with Hulu and has been attracting younger viewers. Notably, Sports HQ and CBSN are generating more streams and adding daily users, which is likely to boost affiliate and subscription fees.

Strong Content Slate Aids International Licensing Revenues

CBS is boosting its content production slate to increasingly license its content to third-party domestic and global partners. Notably, the company expanded its production capabilities in Toronto to support the ramp up in content production.

CBS currently distributes its content to various cable and streaming service providers including Netflix (NFLX - Free Report) , which aired CBS American Vandal season 2 at the end of third-quarter 2018.

Additionally, owing to CBS All Access content slate strength, CBS is licensing its content internationally. Notably, content licensing & distribution revenues were up 8.5% year over year to $933 million in third-quarter 2018 due to higher contribution from “additional series produced for third-party services” and international licensing.

Moreover, Showtime OTT is expected to benefit from the boxing pay-per-view event on Dec 1, 2018 between world champion Deontay Wilder and British star Tyson Fury. Notably, the service had more than 26 million subscribers as of third-quarter 2018. Subscriber base is expected to grow on the back of distribution deal with the likes of Spotify (SPOT - Free Report) .

Further, the sale of Television City production studios to Hackman Capital Partners for about $750 million is expected to help CBS further invest in its digital content.

However, higher expenditure for original programming may drag down margins at least in the near term. In the last reported quarter, operating income decreased 16.2% year over year to $248 million due to increased investments in programming.

Moreover, currency fluctuations and cyclical nature of advertising remain overhangs.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

CBS has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a company you may want to consider as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release:

SeaWorld Entertainment, Inc. (SEAS - Free Report) has an Earnings ESP of +38.46% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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