Can CBS Keep Beating Estimates In Its Fourth Quarter Earnings?

by Trefis Team
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CBS Corporation (NYSE:CBS) is scheduled to announce its fourth quarter results on Thursday, February 14. The company reported solid results in the first three quarters of the year, as its earnings per share and revenues came in ahead of market expectations. In the first nine months of 2018, the company’s overall revenue increased 7% year-over-year (y-o-y) to $10.4 billion, primarily due to growth across business divisions except for Cable Networks. The revenues at Cable Networks declined on a difficult y-o-y comparison due to last year’s Mayweather/McGregor pay-per-view boxing event in Q3. The overall gains came largely from growth in advertising, which grew 8% y-o-y, driven by its Network 10 acquisition. In addition, CBS reported adjusted operating income of $2.2 billion (up 3% y-o-y), reflecting higher investment in programming and technology for its new direct-to-consumer platform. The company posted adjusted earnings of $3.70, up 15% y-o-y.

CBS’s stock price declined close to 25% over the course of 2018 despite strong financial results, largely due to the legal issues involving Leslie Moonves and National Amusements. Our $61 price estimate for CBS’ stock is almost 20% ahead of the current market price. We have created an interactive dashboard on What To Expect From CBS’ Q4 Results? 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, and see all of Trefis’ Media data here. We expect the company to continue to post growth in earnings and revenue growth rate in Q4, driven by growth in advertising, direct-to-consumer offerings, retransmission and reverse comps and international content licensing.

Detailed Expectations

CBS expects to see strong gains in advertising for Q4, driven by 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. Further, the company also expects Local Media revenues to pace up in the high teens. In affiliate subscription fees, the company expects retrans and reverse comp revenue to surpass $1.6 billion for 2018. CBS expects to reach 8 million subscribers combined at CBS All Access and Showtime OTT by 2019 in the domestic market. The company’s management earlier made news on the over-the-top front, projecting 16 million subscriptions for 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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