Analysts See More Upside for CBS Corp. Stock

5:00 AM PST 08/14/2012 by Georg Szalai
CBS

The entertainment company's shares have hit multi-year highs, but some on Wall Street argue there is more room for growth.

 

CBS Corp.'s stock may have recently hit its highest prices since the company's 2006 separation from Viacom, but some analysts see more upside potential.

Following better-than-expected second-quarter earnings earlier this month, several Wall Street observers increased their stock price targets and financial estimates. 

The stock hit a post-Viacom split high of $35.90 last week and on Monday closed at $35.72.

On Tuesday, Lazard Capital Markets highlighted CBS shares on its latest "Fresh Money Ideas List," which features stocks, in which its analysts see opportunity based on "some combination of leading products and technologies, favorable industry positioning, positive catalysts, and/or financial strength."

"CBS is the purest way to invest in content re-pricing and structural normalization in advertising," said Lazard analyst William Bird, who has a "buy" rating and $43 price target on the entertainment company's stock. "CBS offers meaningful balance sheet capacity for buybacks, high cash-on-cash returns, and an ability to drive growth with its own propeller," including retransmission consent and reverse compensation revenue.

Such new revenue streams are developing faster than expected. "The goal of reaching $1 billion by 2017 appears to be a year ahead of schedule," Bird said. "Sources of potential upside include streaming, upside to political ad revenues, higher retrans and reverse, new potential syndication deals and the potential to increment buybacks."

While some analysts like Nomura's Michael Nathanson have "neutral" ratings on CBS Corp., Barrington Research's Jim Goss late last week also expressed his confidence in CBS' upside potential.

"CBS stock is up nearly one-third in year-to-date trading, with increased earnings expectations likely being accompanied by improving investor confidence in management’s ability to not only achieve its targets, but to add to these accomplishments with incremental transactions involving retransmission consent and reverse comp, programming sales to third-party providers like Netflix and Amazon and program syndication in both domestic and international markets," he wrote in a research note. 

Goss reaffirmed his "outperform" rating and target price of $41.

Asked by THR about reports that CBS Corp. was looking at a bid for Dick Clark Productions, Goss said "this could make sense in a couple of ways."

He explained: "One is that event programming has proven to be compelling for CBS and its affiliates in terms of an added reason to draw attention to the network as well as an added justification for retransmission dollars and potentially reverse comp." After all, station affiliates are more willing to pay networks if their network partner is securing programming that reinforces the brand value of the network. "CBS often points to major sports events and award shows as falling into this category, and this appears to be a significant focus of DCP," Goss said.

He concluded: "Bottom line, should [CBS CEO Leslie] Moonves choose to pursue such an acquisition target, I am confident he will have a plan in mind to make it accretive and complementary to existing CBS operations and growth efforts."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

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