CBS Price Estimate Revised To $52 After Q3 Earnings

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We have revised our price estimate for CBS Corporation (NYSE:CBS) from $61 to $52 after the company reported its third quarter earnings. Our revised outlook for the company’s entertainment division – which includes CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Interactive and CBS Films – led the change in price estimate.

Looking at the recent quarterly results, the entertainment division saw a mere 1% growth in revenues while its earnings before interest, taxes, depreciation and amortization (EBITDA) declined by 22% to $335 million, due to an increased investment in NFL programming. For the 2013-14 season, CBS remained the most watched network, but its ratings were down 17% in the key 18-49 demographic compared to the previous season (read More – CBS Posts 6% Earnings Growth Led By Higher Affiliate And Subscription Fees).

A similar trend was seen over the past few quarters, and for the nine month period ending September 30, 2014, segment revenues were down 6% to $6.05 billion while segment EBITDA was down 13% to $1.17 billion. While some of the declines can be attributed to the absence of the Super Bowl, which was broadcast on CBS in 2013, a softer advertising marketplace and lower ratings further added to the woes. The company’s advertising revenues are down 7% so far this year. [1]

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The ratings trend was not limited to CBS, as it can be seen at other networks as well, with ABC down 5%. [2] NBC is the only broadcasting network to be up in ratings, which largely benefited from its Winter Olympics coverage this year. Moreover, the advertising marketplace has been softer this year. Looking at Q3, broadcasting advertising was down 0.3% to $3.09 billion. While NBC was the only network to see growth, with 4% gains, CBS was down 1% to $785 million, ABC down 3% to $717 million and Fox down 6% to $439 million. [3]

Over the course of the past few years, cable networks have risen in popularity owing to their specific focus. This has helped them create loyal audience bases, and consequently broadcast networks have suffered in terms of viewership. Accordingly, we don’t expect any significant growth in CBS and CW networks’ advertisement revenues, and estimate them to be around $5 billion by the end of our forecast period. This reflects around a 20% change to our earlier revenue estimate of a little over $6 billion for advertisement revenues.

See our complete analysis for CBS

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Notes:
  1. CBS Corporation’s SEC Filings []
  2. NBC Completes Its Winning 2013-2014 Season With a Victory for the Week of September 15-21, Zap2it, Sep 23, 2014 []
  3. Broadcast, Cable TV Networks’ Ad Revenues Slip In Q3, Media Post, Nov 10, 2014 []