CBS: Still Making the World Turn

 | May 08, 2014 | 9:00 AM EDT
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CBS Corporation (CBS) reports first quarter fiscal 2014 results today after the close. The stock has been driven lower by the fear of lower television ratings and a potential loss in the Supreme Court over the unresolved Aereo case

While the first quarter could be sloppy, I think investors will look forward to next season and tune into the stock.

I see the recent weakness in CBS as a buying opportunity. During the first quarter, the company successfully spun off its Outdoor advertising business (CBSO) and announced it would accelerate its share repurchase program. Management was expected to buy back about $1.5 billion of its $2 billion buyback program in just the first three months of the year.

CBS reported a profit of $0.78 on revenue of $3.9 billion in the last quarter. Operating income before depreciation and amortization (Oibda) totaled $907 million, up 7%. Net income was $470 million.

This quarter, investors are expecting revenue of $3.9 billion and net income of $445 million on earnings per share of $0.74. For the year, analysts are looking for $15.5 billion in revenue with net income of $1.9 billion and $3.47 per share.

While revenue is expected to be up just 1.1% for the year, CBS is a consistent performer. Its ratings have been strong, but in the last year NBC has come from last place to a strong second place. TV makes up about 88% of revenue, so investors constantly worry about ratings. CBS should be able to hold onto its lead.

CBS has begun to license content to Amazon (AMZN) and HULU, as well as cut new retransmissions deals, which could add upside to revenue estimates. In addition, the campaign season is beginning. Political spending is expected to be heavy across the country as the Democrats and Republicans battle it out. Political spending could provide a nice bounce to revenue as well.

CBS has been a consistent performer and routinely trades between 12 and 19x forward estimates. Analysts think the company can earn $4.03 next year. That means the stock could trade in the mid $70s by this time next year. With a decent earnings report tonight, I think investors will tune into to CBS.

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