Analyst turns bullish on CBS


Wells Fargo Securities analyst Marci Ryvicker has upgraded CBS Corporation to “outperform” and said it is a stock that clients should want to own the stock before the company reports its Q3 numbers. She sees improvement for both the network business and at the local level for the CBS O&O radio and TV stations.

Ryvicker admits she may be “a little late to the party,” since CBS’ stock is already up 34% since August 6th, while the S&P 500 has gained only 5% for the same period. Even so, she still sees upside potential of around 30% to the closing price of $11.86 on September 14th before she issued the new research report.

First, the network business. Ryvicker thinks scatter should strengthen due to both the solid primetime schedule at CBS and the “Jay Leno effect.” She’s looking for incremental viewership gains for CBS due to NBC’s switch from scripted dramas to the Leno talker in the 10-11 pm ET slot.

“Television should benefit from the Superbowl, political and retransmission consent,” the analyst wrote. “CBS’ television group is likely to generate an additional $420M in revenue from the Superbowl (earned $170M in 2007), political (earned $160M in 2006 and $140M in 2008) and retransmission consent (earned $20M in 2008 and $40-50M in 2009E),” she suggested.

And Ryvicker sees improvement in local ad sales, which had been down significantly for local radio and television stations, including the sizeable groups owned by CBS. “Channel checks suggest parts of local advertising are bouncing off the bottom. Recent channel checks suggest that parts of local advertising are bouncing off the bottomdue to tightening in auto, financials and fast food. We would not characterize anyone as ”jumping for joy”, but recent trends are clearly more positive. Plus, we are fast approaching the month of October, when life as we knew it pretty much stopped last year (i.e. VERY easy comps),” she said in her latest report.

Ryvicker wrote earlier this month in a more general industry report that “a muted ad recovery is underway.”

How optimistic is she? Ryvicker has raised her 2010 revenue esimate for CBS Radio to $1.25 billion. That’s only a gain of 1%, but she had previously expected it to be flat. And she sees radio operating income before depreciation and amortization (OIBDA) rising by 9% to $379 million. For TV, whe has raised her revenue expectation to $8.9 billion – a 4% gain instead of only 2%. She sees TV OIBDA growing 16% to $1.79 billion.

[Editors note: The 9/14 closing price for CBS was corrected in the story above to $11.86, which was what Ryvicker had actually listed in her report. Our original story listed a different figure which had appeared immediately below the correct figure in a table associated with her report.]