Wall St. Speaks Out on Thursday Night Football Impact

Thursday Night Football's Potential Impact - Dan Salmon-BMO Capital Markets

Event

In this report we examine the impact of the new eight-game Thursday Night NFL package on CBS's ratings, advertising revenue, and 2H14 EPS. The first game kicked featured the Pittsburgh Steelers and Baltimore Ravens.

Impact & Analysis

Slightly positive. Our three key findings are: 1) we believe the new NFL package and more original programming due to schedule shifts can contribute $0.04 of incremental EPS in 2H14 under our base-case scenario; this is already baked into our estimates, which are not changing at this time. We apply a scenario analysis to this figure that suggests a potential range of ($0.13)-$0.21 of EPS impact, however we believe there is a much higher likelihood that ratings can over-deliver (vs. our estimated 12.0 rating for the games), creating potential upside to our estimates; 2) we believe the Entertainment segment will largely break even on the games, as it absorbs the cost of the rights and production, offset slightly by payments from affiliates of the programming; and 3) we believe the games and programming changes can add ~$34 million of OIBDA to the Local Broadcasting segment; this is helped by the fact that the game schedule is over-weighted with teams that are in CBS O&O markets. Our analysis focused upon all relevant schedule changes in 2H14, namely: 1) the two Thursday games before the new TV season begins; 2) the five Thursday games during the TV season; 3) the eighth late-season Saturday game; 4) moving Big Bang Theory to Monday nights to start the TV season, and; 5) the impact of more originals throughout the remaining Thursdays following the games. While not included in our analysis, 1Q15 will also benefit from the increased original content replacing repeats.

Valuation & Recommendation

We rate CBS Outperform. Our target remains $70, which implies 10.6x 2015 OIBDA and 16.7x 2014 EPS.

CLICK HERE for full report including research disclosures.

Daniel Salmon, Equity Research Analyst at BMO Capital Markets. Research trends at the intersection of entertainment, advertising, data and technology. Dan can be reached at dan.salmon@bmo.com. Click to read more on Dan and the BMO Company disclosure.

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