CBS as a Long-Term Holding
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
To start with a historical backdrop, those that purchased CBS (NYSE: CBS) shares in the throes of the recession in early 2009 could have realized an eight-fold gain at the stock’s recent quotation. Many on Wall Street thought the company might never bounce back from the drying up of advertising spending, particularly in the broadcast (traditional network) and radio markets. Still, to investors’ delight, management continued to invest in quality programming content, along with expanding its cable television presence and taking measures to lift margins. Today, share profits are growing at a steady clip, with accretion also stemming from share-repurchase activity. Having turned the ship around, given a stable environment, CBS may well have several more years of steady earnings gains in store.
Strong Ratings and Syndication Sales
Prime-time hits such as NCIS are allowing for relatively stable ad revenues. In fact, CBS recently led all networks with seven of the top-ten viewed programs on a weekly basis. In addition to mastering the art of the crime drama, CBS’ sports broadcasts are highly rated and provide an outlet for promotion of upcoming programs. Plus, not only relying on its seasoned shows, newly launched series including Vegas and Elementary hold promise. We expect CBS to remain the viewership leader for some time to come based on its possibly-unprecedented dominance on the ratings front.
Years of top-notch programming production have created a base for exceptional demand for syndicated shows. Certainly, CBS is benefiting from rising syndication revenues for the likes of CSI and other series. Looking ahead, the trend should persist, as programs such as The Good Wife, NCIS, Blue Bloods, and Hawaii Five-O all are sold to cable over the next two years. The result has been a diversification of the revenue stream, with advertising now contributing roughly a 44% and falling percentage of the total.
This is in contrast to entities that continue to depend primarily on ad market improvements for profit advances. Namely, station owners like Sinclair Broadcast Group (NASDAQ: SBGI) and Belo Corp. (NYSE: BLC) own stations in small- and mid-sized markets. Their earnings gain support from events such as presidential and midterm election advertising, as well as sports broadcasts like the Olympics. The stocks can be considered yield plays, as the cash rich firms dole out the majority of earnings as dividends.
CBS’ Cable Networks
Not known for cable television, CBS is the owner of the Showtime, CBS Sports Network, and Smithsonian Networks units. Its cable-based profits are climbing nicely behind higher subscription counts and affiliate revenues, rendering them a source of bottom-line expansion. Showtime’s Homeland series is attracting viewers, while management, not resting on its laurels, is rolling out further dramatic programs on that network. Ongoing increases in cable audience numbers ought to assist income results over time at the Cable Networks division.
Summing it Up
CBS’ stock is one to purchase and tuck away, believing it is backed by an impressive base of network and content assets, as well as a sound operating strategy. CBS Corp. does not own a film studio, contrary to most media conglomerates. It is forging ahead with its proven broadcast network, where it is the chart topper in the ratings books by far, disregarding FOX’s American Idol. CBS owns most of its large-market network affiliates, boosting its cash flows. And, the company puts its cash to good use, repurchasing shares and paying a modest dividend. Readers will want to accumulate CBS shares for long-term total return, along with SBGI and BLC as income selections.
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