CBS: Hang on and enjoy a nice ride


CBSWells Fargo analyst Marci Ryvicker believes there may be some turbulence in the near future of CBS, but at the end of the day a number of positive elements could make it a winner.

One big reason for this is that in her opinion the stock carries a bargain price. She said, “Trading at 14.7x NTM P/E, CBS is at its lowest level since 6/2013. We can’t help but think today’s negative sentiment makes CBS tomorrow’s gem. We maintain our 2014E EPS of $3.26 but RAISE 2015E EPS to $4.00 from $3.93 due to a more aggressive repo.”

A huge factor for CBS is its Thursday night NFL package. On top of its immediate benefits, Ryvicker believes it will put CBS in a much stronger position during next year’s upfronts, in the form of “…fewer general entertainment repeats and a tighter supply of inventory.”

Ryvicker also sees great opportunity in the retranmssion consent and reverse compensation areas. She said, “The CBS’ station switch in Indianapolis created a ‘shock and awe’ across the broadcast and investment communities back in Aug. Quite frankly, we were surprised at how many investors viewed this as a negative for CBS, as we certainly don’t think the timing of this announcement had anything to do with the weak ad market. Based on our [calculations], we see ~$150MM of upside potential in 2015 alone.”

The turbulence is coming from the ratings front. Ryvicker notes that Nielsen’s accounting for broadband-only homes is under question, and that a possible fix would add to the upside CBS could enjoy once the calendar segues to 2015.

Bottom line: CBS is rated to outperform.