CBS (NYSE:CBS) reported its Q4 2011 earnings yesterday. While the revenues showed a decline compared to Q4 of 2010, the profits increased as the company continued to benefit from its cost control measures and additive effect of improved content monetization. The revenues declined due to lack of political ad spending & syndication revenues from CSI that were present in Q4 2010. The advertising market has seen a little softness towards end of Q4, but the future looks much better in our view. We expect CBS’ stock to benefit in 2012, along with some other media companies such as News Corp (NASDAQ:NWS) and Time Warner (NYSE:TWX).
What To Expect In 2012
2012 looks good as economy is improving and companies are willing to spend on advertising. This is evident from the fact that scatter pricing is significantly up over upfront ad pricing, which promises a good start to 2012. 
Sirius XM (NASDAQ:SIRI) stated that it expects vehicle sales in the U.S. to be up about 8% in 2012 amounting to 13.7 million units. This has been backed up by statements from automakers which also expect a good year ahead. Automakers tend to be heavy advertisers, and this bodes well for media companies such as CBS. Furthermore, about $2 billion will be spent on political campaigns this year and consequently, we expect CBS’ local broadcasting stations as well radio business to get a boost. 
CBS Television Network, which constitutes about 20% to CBS’ value, will continue to benefit from its high ratings as it is currently at a very strong position in the market. The ad pricing is favorable and CBS expects that its content on the network will continue to be rated high.
Furthermore, investors can expect continued improvement in margins going forward as CBS is piloting lesser number of programs compared to its competitors and that should save some costs. Additionally, the revenues from re-transmission fee, streaming licensing as well as syndication will be additive to margins.
Our price estimate for CBS stands at $20.91, implying a premium of about 30% to the market price.Notes: