Can CBS Keep Beating Estimates In The Second Half Of 2018?

CBS Corporation (NYSE:CBS) reported solid fiscal second quarter results on August 2, as both its earnings per share and revenues came in ahead of market expectations. In Q2, the company’s overall revenue increased 6% year-over-year (y-o-y) to $3.5 billion, primarily due to growth across business divisions. The Q2 gains came largely from growth in affiliate and subscription fees, which grew 16% y-o-y. In addition, CBS reported adjusted operating income of $694 million (up marginally) and also posted adjusted earnings of $1.12, up 8% y-o-y. This earnings increase was driven by a lower effective income tax rate in 2018 compared with the prior year, as a result of the enactment of new federal tax legislation.

CBS’ stock price has declined more than 10% over the course of 2018 despite strong financial results, largely due to the legal issues involving Leslie Moonves and National Amusements, which further aggravated with the recent fallout of harassment allegations against Moonves. Our $60 price estimate for CBS’ stock is around 15% ahead of the current market price. We have created an interactive dashboard on what to expect from CBS’ Q3 and fiscal 2018, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation. We expect the company to continue to post an increase in earnings and revenue growth rate in Q3, driven by growth in advertising, direct-to-consumer offerings, retransmission and reverse comps and international content licensing.

CBS expects to see strong gains in the second half of the year at the local business, with the midterm elections in the fall. The company also expects continued growth in content licensing as it is planning to expand content development and distribution to a host of third-party distributors such as Apple, Netflix, and TBS. The company’s management also made news on the over-the-top front, projecting 16 million subscriptions from All Access and Showtime OTT through 2022.

Looking Ahead in 2018, we expect CBS to generate around 14.6 billion in revenues and adjusted earnings of around $2.1 billion. Our revenue forecast represents year-on-year growth of nearly 7%. Of the total expected revenues in 2018, we forecast $9.4 billion to come from the Entertainment business, nearly $2.6 billion for the Cable Networks business, over $810 million in the Publishing business, and nearly $1.7 billion for the Local Media division.

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