CBS Investors: Here's Your Floor

Credit Suisse’s Omar Sheikh maintained an Outperform rating on CBS Corporation CBS, while reducing the price target from $75 to $70.

“We continue to regard CBS as being in a structural sweet-spot in the industry, with zero exposure to basic cable networks and with pricing for its content rising both inside and outside the ecosystem,” Sheikh explained.

The analyst believes that the estimate of EPS of $4 for 2016 now appears to be the floor, with the potential for upside to be driven by a potential increase in content licensing revenue and stronger advertising.

The possible increase in content licensing revenues is expected due to “the company looking for both CBS library deals internationally and for more Showtime licensing deals,” Sheikh mentioned, while stronger advertising could lead to improvements in near-term scatter and upfronts.

“We forecast CBS will grow retransmission and reverse compensation revenues by $1.6bn 2015-2020, virtually all of which will drop through to the bottom line,” the Credit Suisse report said.

Even if CBS’ TV advertising business remained flat during that period, “the company should still be able to grow its underlying operating income by >10 percent pa and EPS by 15-20 percent pa,” the report added.

The EPS estimate for 2017 has been lowered from $4.91 to $4.62.

Image Credit: By Tom Oldham [CC BY 3.0], via Wikimedia Commons