CBS Corporation (CBS) reported better-than-expected fourth-quarter 2011 earnings on February 15, 2012. The Wall Street analysts had almost a week to ponder on the earnings results and eventually make their estimates revision.
Below we will cover the results of the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Report Review
CBS Corporation’s quarterly earnings of 57 cents a share surpassed the Zacks Consensus Estimate of 53 cents and jumped 23.9% from 46 cents in the year-ago quarter.
Significant political advertising revenues and the second-cycle syndication of CSI, which boosted the prior-year quarter’s results, were not there during the reported quarter. Thus, revenue declined 3.1% year over year to $3.78 billion and missed the Zacks Consensus Estimate of $3.92 billion.
(Read our full coverage on this earnings report: CBS Reports Better Than Expected)
Earnings Estimate Revisions – Overview
Since the earning release, estimates for CBS Corporation displayed an uptrend, reflecting that the analysts are optimistic on the company. This seems to be good news, and now let’s get into the details of the earnings estimate.
Agreement of Estimate Revisions
Clearly, a positive sentiment is evident among analysts, signifying that they are hopeful on the company’s future earnings outlook. In the last seven days, of the 24 analysts covering the stock, 16 have raised estimates for 2012, while none lowered the same.
Looking out to fiscal 2013, story remains the same as 7 analysts raised their earnings estimates, while none moved in the opposite direction.
The upward revision signifies that the analysts remain confident about advertising continuing its momentum in 2012. Political advertising estimates are very high (around $8B) for 2012 for being the year of Presidential election and CBS Corporation being the largest television station in U.S., is expected to benefit largely on this front.
Moreover, the company’s effective cost-control measures and growth in high margin revenue coming from streaming deals, increased international syndication revenue and retransmission fees will lead to margin expansion in quarters to come.
Turning to the current quarter, analysts’ sentiment remained mixed. In the last 7 days, 3 analysts raised their estimates, while 2 lowered the same. For the second-quarter 2012, 4 analysts made an upward revision, while 2 moved in the opposite direction.
Some of the analysts are cautious about the accelerated ad growth during the year. Further, the lingering macro-economic headwinds are adding fuel to the fire.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate for fiscal 2012 and 2013 increased by 4 cents to $2.33 and $2.63, respectively.
Estimates haven’t budged for CBS Corporation’s first-quarter 2012, the Zacks Consensus Estimate remained stable at 43 cents, and for the second-quarter 2012, it inched up a penny to 60 cents a share in the last 7 days.
The current Zacks Consensus Estimate for first-quarter 2012 is pegged in the range from a low of 38 cents to a high of 51 cents. For fiscal 2012, the estimates range from $2.16 to $2.45.
Our View
CBS remains well positioned to drive revenue growth in the coming quarters through its strategic initiatives and operating efficiencies. Management remains optimistic and expects growth momentum to continue in fiscal 2012, based on reverse compensation from affiliates, strong demand of its content and streaming, retransmission consent and political advertising.
Due to its exposure in publishing, radio and television broadcasting, and outdoor billboard businesses, CBS remains highly susceptible to the advertising market. To mitigate this, the company is striving to add diverse revenue streams to hedge against economic cycles.
Revenue from retransmission keeps growing at a brisk pace. Further, the company is increasingly getting reverse compensation from its affiliates, marking a new source of revenue. The company also expects reverse compensation to expand in the coming quarters.
CBS secured deals worth hundreds of million, including a two-year deal with Netflix Inc (NFLX), and also signed a non-exclusive licensing agreement with Amazon. Com. Inc (AMZN). These measures backed CBS to generate revenue from shows that have already been broadcasted on TV years ago and facilitated the company in capitalizing its content.
CBS Corporation’s long-term agreements with the NFL, the NCAA, the SEC and the Grammy’s will generate stream of positive cash flows for the company in the long run.
Currently, we have a long-term Outperform rating on the stock. Moreover, CBS Corp. holds a Zacks #2 Rank, which translates into a short-term Buy rating.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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