Upping Estimates on CBS on Better Ad Environment
CBS (NYSE:CBS) competes with other media conglomerates like Disney (NYSE:DIS), News Corp. (NASDAQ:NWS), Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) in the media and entertainment business. The company recently released its Q4 2010 earnings and based on observed improvements in margins across all categories, an improving advertising environment and continued growth in the local broadcasting segment, we have updated our price estimate for CBS stock to $26.34. Our price estimate for CBS stands at 18% premium to the market price.
One of the key aspects of the improvement according to CBS was its content. While there has been general improvement in the advertisement marketplace helping all the media companies out there, having better content gives the company better negotiating power for higher ad prices.
Content is King as Ratings Improve
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CBS has observed higher ratings for many of its shows and is also seeing improvement in content licensing due to growth in international markets. The prime reason behind this, as the company states, is the quality of their content. CBS mentions during its earnings:
“CBS was the only network to successfully launch its entire new fall lineup, and three of our new series, Blue Bloods, Hawaii Five-0 and Mike & Molly are the top three new shows of the season. At the same time, our returning shows continued to dominate. For example, number one ranked drama, NCIS, just broke another series record, attracting nearly 23 million viewers to a show that’s now in its eighth season.” [1]Other than that, NFL average viewership got a significant boost reaching its highest in 23 years, thus aiding ad prices. Additionally the Grammys had its highest viewership in 10 years of to 26.5 million viewers. [1] Thus it seems that CBS ratings are doing well with the help of its content.
What This Means For CBS?
CBS’ entertainment division, which has been benefiting from the above mentioned trend, primarily includes the CBS network division and TV licensing. We estimate that CBS network constitutes about 15% to the company’s value while TV licensing adds another 13% approximately. Thus, positive trends affecting almost 30% of CBS’ value are meaningful for its share price. Good content implies better ratings, which directly aids advertisement revenues and earnings.
You can modify our forecasts above, as well as TV licensing revenue forecast below, to see how the key drivers that are being affected by these positive trends play out in terms of their impact on CBS’ estimated value.
See the complete $26.34 Trefis price estimate for CBS’ stock.