■ Action/Event: Following strong Q3 results, we leave our 2015/16 EPS forecasts broadly unchanged at $3.43/$4.00 (vs $3.42/$4.00 previously). With the balance of risks to 2016 forecasts now on the upside, in our view, we regard the current valuation as egregiously cheap. We remain OP.
■ Advertising trends strong: In line with peers, CBS is reporting elevated levels of demand in the scatter market – management highlighted scatter is "the strongest we've seen it for years". This provides a strong tailwind into Q4, but we also highlight that 2016 will include the Super Bowl (7 February) and the Presidential Election (8 November). These should sustain the advertising tailwind through to the end of next year, in our view.
■ Online consumption shift should be accretive: We believe the decision to make a new series of Star Trek available exclusively on CBS All Access signals an attempt to accelerate the evolution of the service into a distribution platform with real scale. We also note management expects "one or more" tech company to launch a new video platform during 2016, which we assume will include the CBS network and local affiliates. Given CBS will generate more per subscriber from these new platforms than it does in the current ecosystem and, given zero exposure to basic cable, these developments illustrate that CBS is arguably the best positioned in the industry – it should make more money from the marginal subscriber shifting video consumption to online platforms, and is therefore the only content owner where this shift should be accretive, not dilutive.
■ Valuation: Our target price is unchanged at $75, which equates to 18.8x 2016 P/E, and we continue to expect 18% CAGR in EPS 2014-2017E.
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