What Will Drive CBS’s Near-Term Growth?

CBS Corporation (NYSE: CBS) reported solid fiscal first-half results, as both its earnings per share and revenues came in ahead of market expectations. In the first six months of 2018, the company’s overall revenue increased 10% year-over-year (y-o-y) to $7.2 billion, primarily due to growth across divisions. These gains came largely from growth in affiliate and subscription fees, which grew 16% y-o-y to $2 billion, and programming revenues, which were up 12% y-o-y to $1.7 billion. In addition, CBS reported adjusted operating income of $1.5 billion (+4% y-o-y) and also posted adjusted earnings of $2.47, up 18% y-o-y. The earnings growth 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.

Going forward, we expect CBS’s revenue to increase by almost 10% through fiscal 2019. To arrive at our fiscal 2019 net revenue estimates for the company, we have broken down the revenue streams and estimated separately. We have also created an interactive dashboard on How Will CBS’s Revenue Growth Look Over The Next Two Years? which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenue estimates for the company. CBS’s stock price has fluctuated between $48 and $60 since the beginning of this year. The stock is slightly down year-to-date despite strong financial results, largely due to the legal issues involving Leslie Moonves and National Amusements. We have maintained our long-term price estimate for CBS at $61, which is almost 10% ahead of the current market price.

Looking ahead in 2019, we expect CBS to generate around $15.3 billion in revenues and adjusted earnings of around $1.9 billion. Of the total expected revenues in 2019, we forecast $10 billion in revenues for the Entertainment business, nearly $2.7 billion for the Cable Networks business, over $800 million for the Publishing business, and nearly $1.7 billion for the Local Media division. The company 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. We expect CBS to see modest growth as it continues to be driven by growth in advertising, direct-to-consumer offerings, retransmission, and reverse comps and international content licensing in the next two years.

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