CBS: Eying Stability Into 2016

We are confident in our CBS estimates both for 4Q we expect EPS of 091 and 2016 Underpinned by healthy TV ad demand continuing into 1Q16 we believe 4Q and 1Q results are unlikely to realize material downward earnings revisions amp8211 a welcomed departure This indeed could be an unusual time when media investors look for TV ad exposure 50 of CBS revenue as opposed to payTV affiliate fee exposure Upcoming drivers include the Super Bowl in 1Q political ad contributions and possible rationalization of Thursday Night Football TNF rights fees We believe 2016 content licensing revenue will be broadly stable YoY the buyback pace remains steady and significant and valuation at 115x amp821716E EPS of 400 is reasonably attractive in our opinionAd market trends and favorable comps make CBS EPS revisions less likely this year Favorable TV industry ad market trends SMI reported 12 and 15 domestic broadcasting ad spend growth in October and November increase our conviction in our 5 YoY estimate for 4Q15 network ad growth particularly given the modest 1 decline in ratings QTD well ahead of its peers These trends along with the favorable YoY TNF scheduling compare with one additional game in 4Q lower the risk of material earnings revisions heading into 4Q This is a positive secondderivative change as EPS revisions averaged 8 in the two months leading up to earnings over the last six quartersSwing factors favorable for CBS in 2016 In prior years CBS faced greater headwinds from the new TNF contract 2014 and very difficult TV licensing comparisons 2015 For 2016 we do not see any such new major headwinds Given the ad market we are confident in our 3 YoY underlying network ad growth outlook for 2016 Our estimates for Super Bowl and political advertising are incremental to that outlook We model flat YoY licensing revenue given the younger slate of current primetime shows which could drive a rebound in licensing revenue growth in 2017TNF could become a source of bottom line pickup Our model assumes CBS retains the rights to the TNF package at a modest uptick in costs We note that if CBS does not retain the rights there would be downside to our 2016 ad growth assumption but there would be an offsetting margin impact with a netpositive 100120m OI impact our estimate of course CBS would lose the Thursday Night NFL promotional platformValuation multiple attractive on many counts CBS currently trades at 115x amp821716E EPS well below the group average of 16x the cheapest media name besides VIAB and SNI it trades below its threeyear average of 14x Our 60 TP implies a 15x amp821716E PE below the current peer average of 16xCLICK BELOW TO ACCESS RESEARCH REPORTPRESENTATION including important disclosuresCBS Corporation Eying Stability into 2016Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page httpgonomuranowcomresearchglobalresearchportalpagesdisclosuresdisclosuresaspxThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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CBS: Eying Stability Into 2016

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Anthony DiClemente

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