CBS Corporation’s (CBS) strategic initiatives have helped it to weather the economic downturn. The company has been aggressively selling slow-growth radio stations in mid-sized markets to focus on the large markets that promise real growth. Moreover, the company has been paring its cost structure to protect its shrunken revenue base.
This has prompted us to upgrade our recommendation on CBS Corporation to Outperform from Neutral with a target price of $16.00. As the company divests non-core assets, it leverages its strong balance sheet to deploy cash in higher growth interactive businesses that complement its core operations.
Management is resorting to cost cuts in its TV, Radio stations and Outdoor businesses. The company has reduced its overhead costs by lowering headcount in local markets, slashing dividend and trimming capital expenditures.
CBS Corporation’s disciplined management team, strong brand and highly complementary mix of assets augur well for its growth prospects. In the long term, we think CBS’s divestitures will strengthen operations as it rationalizes its portfolio with better margin and higher growth businesses.
CBS Corporation has notified that it is realigning its reporting segments. From fourth-quarter 2009, it will report under two groups – Content Group comprising Entertainment (CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Films and CBS Interactive), Cable Networks (Showtime Networks and CBS College Sports Network), Publishing (Simon & Schuster); and another Local Group comprising Local Broadcasting (CBS Television Stations and CBS Radio) and Outdoor (CBS Outdoor).
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