CBS Stock Price Targets Raised as Analysts Laud Growth Outlook After Investor Day

Les Moonves 2016 interview grab - H
CNN Money

One Wall Street observer says he "came away with increased confidence that CBS has substantial structural growth ahead of it."

Wall Street analysts started digesting news and commentary from CBS Corp.'s investor day on Tuesday overnight, with most coming away bullish and at least three raising their price targets on the company's stock on Wednesday. 

Stifel, Nicolaus analyst Benjamin Mogil increased his stock target price by $6 to $60 and maintained his "buy" rating. "Following CBS' investor day, we come away incrementally more positive on the name," he wrote. "We view the increased focus on [content] ownership and increasing distribution opportunities, tied to the content ownership, as justifying greater post-2016 growth. He also cited "greater upside to our 2017 estimates."

Guggenheim Securities analyst Michael Morris raised his price target by $4 to $60 and maintained his "buy" rating, saying: "Our increased target multiple and price target reflect the company's strong content ownership and unique digital opportunities, as well as confidence in management's growth opportunities laid out at their investor day."

Jefferies analyst John Janedis also boosted his price target by $4 to $60 and maintained his "buy" rating in a report entitled "The Next Phase of Growth." "Our target multiple is at a slight premium to the group given incremental exposure to more stable, recurring revenue streams," he said.

In his report, Janedis highlighted that comments from management, led by chairman and CEO Leslie Moonves, at the investor day included "four key pillars of growth" that the company expects to achieve over the next five years. CBS raised its 2020 retransmission consent revenue target from $2.0 billion to $2.5 billion and forecast 4 million subscribers each for its CBS All Access and Showtime over-the-top services by 2020, as well as "continued growth in international syndication and monetization of skinny bundles/delayed viewing," he said. "If CBS were able to achieve even half of these goals, combined they could add $1.30-$1.50 to our 2020 earnings per share [estimate]. CBS is well positioned in today's media landscape."

The analyst said the retrans comments indicate a retrans rate of close to $3 per subscriber per month. "At a 70 percent incremental margin, we estimate the $500 million of revenue upside equates to a boost of 75 cents-plus per share to estimated 2020 earnings," said Janedis.

Discussing the CBS All Access/Showtime opportunity after the company's first-ever subscriber guidance, Janedis said the figures would amount to $800 million in revenue. Assuming a 50 percent margin, "given the investments in original programming," it would result in a 85 cents per share boost to 2020 earnings, he said.

In terms of international syndication, CBS over the past five years tripled its revenue to $1.5 billion "benefiting from strong global demand as well as increased ownership of its programming," wrote Janedis. The company's 2020 target of $2.3 billion at an estimated 30 percent margin, that would add 50 cents per share to 2020 earnings estimates, he calculated.

Finally, CBS said skinny bundles and delayed viewing provided a combined $450 million revenue opportunity, which could add 60 cents-plus to estimated 2020 earnings, according to Janedis. "While this assumes skinny bundle subs are additive to the current ecosystem, a shift to skinny bundle would be revenue-accretive given the higher monthly rate," he said.

He also touched on the company's announcement that it would explore a sale of its radio stations, saying a deal could be in the range of $1.6 billion-$1.9 billion in gross proceeds.

Credit Suisse analyst Omar Sheikh also lauded the CBS commentary at the Wall Street event, maintaining his "outperform" rating on the stock and his $70 price target.

"We remain bullish on CBS post its 2016 investor day, during which the company announced bullish long-term revenue targets and its intention to explore "strategic options" for its local radio business," he wrote. "We make no changes to our forecasts at this point, but came away with increased confidence that CBS has substantial structural growth ahead of it. The stock remains, alongside Time Warner, one of our top picks."

CBS shares on Tuesday closed at $52.59. Over the past year, the stock has traded as low as $38.51 and as high as $63.95.