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CBS's (CBS) Solid Quarter and Outlook Reaffirms Top Pick - BMO

February 12, 2016 7:38 AM EST
Get Alerts CBS Hot Sheet
Price: $40.77 --0%

Rating Summary:
    20 Buy, 12 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 0 | Down: 0 | New: 0
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BMO Capital analyst, Daniel Salmon, thinks this quarter highlights why CBS (NYSE: CBS) is his top media pick. Although this wasn't a blowout quarter, the results should be enough to help the company outperform its peers. No change to the Outperform rating or $58 PT.

CBS reaffirmed why it remains BMO's Top Pick in Media. While results might not be enough to drive a big gain in shares under current market conditions, the stock should outperform relative to the group over the next year as investors continue to reassess the health of the pay TV ecosystem and better appreciate CBS’s limited exposure to the cable bundle.

4Q15 EPS of $0.92 were in line with consensus. Total revenue of $3.91B was above the $3.81B consensus. Segment OI was above consensus expectations in Entertainment and Publishing but below in Cable Nets and Local Broadcasting. Underlying network advertising revenue grew 8% year over year. ~$2.8 billion of shares were repurchased in 2015 and ~$2.0 billion remains on the authorization, which CBS expects to complete by the end of 2016.

Keys to the quarter:

1) broadcast network advertising was up 8%, proving its resiliency and the continued strength of the scatter market (and potentially leading to a strong Upfront). CBS has a number of catalysts in 2016 that should keep ad strength going across the company, including relatively stable ratings, the Super Bowl in 1Q and strong political advertising in 2H

2) the reiteration of retrans and reverse retrans revenue guidance shows that broadcast networks are not being affected by the secular changes in the bundle the same way that basic cable networks are

3) Showtime continues to build its high-margin international licensing model (which is still in its early stages) as well as its OTT product

4) utilizing CBS Studios to create exclusive content for CBS All Access

5) the syndication pipeline is building as shows like Scorpion, NCIS: New Orleans, and Limitless, continue to add to episode catalogs that will soon be ready for syndication

No change to the $58 target, which implies 10.0x 2016 OIBDA and 14.5x 2016 EPS.

For an analyst ratings summary and ratings history on CBS click here. For more ratings news on CBS click here.

Shares of CBS closed at $43.57 yesterday.



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