We have maintained our long-term Neutral recommendation on CBS Corporation (CBS) with a target price of $51.00.
Why the Reiteration?
CBS Corporation’s sustained focus on increasing subscription based revenue channels remains a long-term growth driver. We expect the company’s growth momentum to continue in 2013 based on reverse compensation from affiliates, strong demand of its content, digital distribution, syndication sales and retransmission consent.
This Zacks Rank #2 (Buy) stock continues to benefit from its streaming deals as evident from the strong double-digit growth in streaming revenues during first-quarter 2013. It has entered into long-term streaming deals for CW content with Netflix and Hulu, which will boost its operating results.
Moreover, the company entered into a deal with Amazon.com Inc. (AMZN) that extends the latter’s archive of television shows and films currently available on its streaming video site, Amazon Prime Instant Video. These measures facilitate CBS in capitalizing on its content.
Moreover, the company’s 14-year contract with Turner Broadcasting to divide rights fees for the NCAA tournament was part of its effort to reduce costs and generate profits. The company also extended its broadcast rights deal with the National Football League (NFL) till 2022, which was scheduled to end in 2013. We believe that the company’s long-term agreements will generate a positive cash flow in the long run.
However, CBS remains extremely vulnerable to the advertising market and operates in a highly competitive industry. Moreover, secular headwinds remain a matter of concern for broadcast-driven media companies. Consequently, we maintain our Neutral recommendation on the stock.
Other Stocks to Consider
Besides CBS, the other stock worth considering in the broadcasting and television industry includes Fisher Communications, Inc. (FSCI), which holds a Zacks Rank #1 (Strong Buy). Entravision Communications Corporation (EVC) carrying a Zacks Rank #2 (Buy) is also worth considering.
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