Even after run-ups of more 30% so far this year and 76% over the
past 12 months, analysts still see upside in the shares of CBS
Corp., thanks to a favorable advertising environment and the
company's ability to make the most of new revenue streams.
CBS (CBS) shares traded in the $14 range at this time last year.
By the time Bank of America Merrill Lynch's Jessica Reif-Cohen
lifted her rating on the stock to buy from neutral on Dec. 17, of
2011, the stock was at $18. Reif-Cohen said at the time that the
media company's fundamentals were strong, as advertising sales were
brisk, cost cuts were paying off, and subscription-based revenues
were on the rise.
Now, with the stock at $25, the investment community generally
remains bullish, for many of the same reasons.
Tuna Amobi, entertainment analyst at Standard and Poor's Equity,
has a buy rating on the stock, with a 12-month target price of $30.
Ed Atorino of Benchmark & Co. also rates the shares buy, and
predicts they could reach the mid-$30s range if trends remain as
they are.
David Joyce, an analyst at Miller, Tabak & Co., reiterated
his buy rating on CBS shares in early March, saying that "ad
spending appears to continue strongly, and margins should continue
to at least maintain their levels in 2011." His long-term price
target is $33.
"In recent years, you've had really bad industry conditions,"
Atorino said in an interview on Monday. "Along with the bleak ad
picture, you had a lot of concerns about leverage across most of
the media companies. Now, the leverage worries have been cleared
up, and ad trends continue to beat expectations."
Atorino notes that a number of industries that had retrenched
during the 2007-2009 period began to come back last year, and are
now looking to ramp up ad spending even further, including
companies in the automotive, pharmaceutical and telecommunications
industries.
"With all of these new devices coming out, like the iPad2 ,
you're seeing a lot of technology advertising coming back into the
marketplace," Atorino added.
Last month, when CBS reported its fourth-quarter 2010 earnings,
CBS Chief Executive Les Moonves said the company continues to see
"robust" ad sales trends at the CBS network, and "very strong"
commercial time sales at its television stations in the first
quarter. Currently, the network remains No. 1 in overall ratings
for the 2010-11 TV season, and No. 2 among the coveted 18-49
demographic.
As of mid-February, the CBS television network was able to sell
ads at rates 40% higher than during last spring's "upfront" period,
when advertisers bought commercial time for the current TV season.
This indicates very strong demand, and reflects the network's
leading position in the ratings as compiled by Nielsen Co. "It
bodes very well for this year's upfront, which could be the
strongest in a decade," Amobi asserted. "I would be surprised if
there was less than a double-digit [percentage] increase in [ad
rates]."
At the company's owned-and-operated TV stations, CBS predicted
in February that ad sales would be about flat with those of the
first quarter of 2010. That figure is more remarkable than it might
seem, because last year CBS stations carried Super Bowl XLIV, which
was then the most-watched TV program of all time (since eclipsed by
this year's Green Bay-Pittsburgh Super Bowl).
"That's very encouraging," said Amobi. "If you exclude the Super
Bowl, you get revenues that are 'meaningfully higher' in the
current year -- a high teens percentage."
In a note to clients late last month, Miller & Tabak's Joyce
cautioned that some television station groups across the industry
that had anticipated similar results have seen sales taper off to
some degree since then. He speculates that some clients could be
starting to find the high ad rates too pricey, but adds that it
should remain strong. "High pricing now is likely to still beget
high pricing for the next TV season," Joyce wrote.
Amobi acknowledges that the loss of most or all of the NFL
season -- which is in the middle of contentious negotiations
between the players' union and the team owners -- would be a "dire
situation." He notes, however, that the networks' contracts allow
them to recoup some of the payments made to the NFL if
necessary.
CBS has worked hard to increase non-advertising revenue. At its
Investor Day presentation in March, the company said it anticipates
$3 billion in additional revenue opportunities in 2012, from:
--Retransmission fees paid by cable, satellite and fiber
operators for the right to carry CBS station signals
--Fees paid by CBS affiliates to the network in exchange for
programming, a reversal of the pattern that existed for decades
--Revenue from international syndication of such shows as "NCIS"
and "CSI."
--A two-year agreement that allows Netflix Inc. (NFLX) to stream
older television series from CBS's vast library, including the
original "Hawaii Five-O," "Star Trek, "Family Ties" and
"Frasier"
--Increased digital revenue from the Web sites of local
television and radio stations
At a media conference last month, Moonves emphasized the
opportunity in syndication, traditionally the biggest cash cow for
studios. "The international marketplace for television production
has exploded. The amount of revenue we've taken in the last five
years has doubled. We expect it to be up another 20% next year,"
Moonves said.
Regarding the Netflix deal, Moonves said: "The thing we want to
underline is that it was hundreds of millions of dollars and it was
7% of our library, and nothing that's currently on the air. That's
why we say ... there is a bigger and bigger upside to this kind of
content with Netflix for additional deals and some of the
competitors for Netflix."
Amobi agrees. "There's a lot of stuff still out there (in the
CBS library). They've done the smart thing and decided not to do a
deal for things that are still in their first or second syndication
cycle, where there is still the most money to be made."
-David B. Wilkerson; 415-439-6400; AskNewswires@dowjones.com
CBS (NYSE:CBS)
Historical Stock Chart
From Jun 2024 to Jul 2024
CBS (NYSE:CBS)
Historical Stock Chart
From Jul 2023 to Jul 2024
