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August 02, 2011
Les is More at CBS
Les is More! CBS delivered another outstanding quarter. Led by Les Moonves, CEO and President, CBS continues to put in by far the best performance of any media company.
CBS reported EPS of 58 cents, well in excess of the 45 cents consensus. Revenues were just a bit ahead of expectations at $3.59 billion vs. consensus of $3.55 billion. EBITDA of $873 million was $110 million ahead of consensus as once again margin performance was outstanding. EBITDA margins of 24% are way ahead of even the most aggressive analyst estimates.
$100 million of the $110 million EBITDA beat came from the Entertainment segment. Upside from the domestic Netflix deal likely accounted for a lot of the gain. Analysts and investors will surely fret that this is one-time but as Moonves noted deals recently announced with Netflix abroad and Amazon in the US are not in the 2Q numbers.
Strength was also seen at Showtime leading the Cable Networks segment to beat EBITDA expectations by over 9%. Local Broadcasting assets performed inline with expectations which is not bad at all given very tough comps in political and a lull in auto ads due to the crisis in Japan. Only Outdoor fell a bit short of expectations.
CBS is benefiting from the fact that it does need to replace DVD sales revenue. Instead as it leads the industry in selling content to Netflix and other online video distributors, all of the upside is incremental revenue at extremely high margins.
Investors will worry that advertising will falter along with the economy. I think CBS has some defense against this line of thinking given a just completed very strong upfront and a big 2012 with political and Olympics tightening the market.
CBS has generally traded at a discount to other entertainment stocks due its heavy reliance on advertising. Under Moonves, the company is performing beautifully on advertising while diversifying into content and subscription fees. Both the new areas have more upside.
Superb execution, strict cost controls, diversification from advertising, and aggressive return of cash to shareholders warrants multiple. Positive business momentum and these factors provide protection against economic concerns. In a decent market, CBS can trade to the mid $30s. It remains my top pick in media and communications.
Disclosure: CBS is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, an SEC registered investment advisor. CBS is a net long position in the Entermedia Funds, long/short equity hedge funds focused on media, communications, and related technologies. Steve is co-portfolio manager of Entermedia, owns a stake in the Funds' investment management company, and has personal monies invested in the Funds.
Posted by Steve Birenberg at August 2, 2011 07:59 PM in CBS
CBS AS DESCRIBED IN YOUR BLOG HAD EXCELLENT EARNINGS.
ALMOST ALL STOCKS ARE DOWN BIG.MANY TECH AND MEDIA STOCKS HAD GOOD TO EXCELLENT EARNINGS.
THE S/P HAD A TECHNICAL BREAK AT 1250 AND EASILY DROPPED TO COMPLETE THE HEAD AND SHOULDERS.
NORMALLY,ONE WOULD BUY ON THE DIPS IF WE ARE NOT GOING BACK INTO A RECESSION AND BEAR MARKET,.HOWEVER, THE
MARKET ACTION HAS BEEN UGLY.
IS IT TIME TO SELL OR DO YOU STILL THINK WE ARE IN A TRADING RANGE AND CAN BUY ONTHE DIPS.
DO YOU THINK WE CAN AVOID A DOUBLE DIP RECESSION/BEAR MARKET?
Better chance of a double dip than I previously expected. Hopefully a period of calm is coming at least out of Washington since they take August off. A little oversold rally would also help. I think we may have created a self fulfilling prophecy with all the negatvie talk leading to less spending by businesses and consumers right as stimulus spending is winding down.
I really don't think you can forecast what happens next. But in my hedge fund I have spent the last two days buying. Partially for a bounce but like CBS I see lots of stocks with good news and cheap valuations. I bought more VVTV today at $6.25.
I suspect the damage is severe enough that a huge bounce is not likely so I would not rush to buy unless you are willing to quickly sell. Sometimes doinng nothing is fine. News makes us want to act. Try to avoid that temptation and stick with individual stocks where there is value to support the current stock price.
Posted by: Steve at August 3, 2011 01:58 PMThe job number suggests we are not in a recession at least at present.However,the selling pressure is unremitting.If it continues for a prolonged period, one would think that the consumer would become weaker.
If no good news comes over the next few days,would you start increasing cash furthur or just hold value for the long term.
VVTV and CETV are being hit particularly hard,as there future earnings are not tangible at present.MIICF seems to be hanging in better.The risk on trade is totally gone
INDIVIDUAL COMPANIES SUCH AS APPLE ETC. ARE DOING VERY WELL.HOWEVER, THE OVERALL MARKET WAS A YO-YO ON FRIDAY. FRIDAY NIGHT, S AND P DOWNGRADED US DEBT.
I DID NOT THINK IT WAS SUCH A BIG DEAL,BUT I AM WRONG
SO FAR,ISRAEL AND SAUDI ARABIS WERE DOWN APPROX.7% ON SUNDAY.JAPAN IS ALSO DOWN BIG.
US FUTURES ARE AT PRESENT DOWN 300.
HOW CAN ONE MITIGATE THE DOWNSIDE PRIOR TO MONDAY OPENING?
SHOULD ONE SELL ANY WEAK POSITIONS AND COLLECT CASH;SHORT THE MARKET; OR JUST HOLD ON AND HOPE THAT THIS UGLY ACTION IS ONLY TRANSIENT?
IT SURE SEEMS AS IF WE ARE GOING BACK INTO A BEAR MARKET.
THE MARKET ACTION IS BRUTAL.
ANY THOUGHTS?
WHAT IS GOING ON WITH VVTV/
STOCK IS NOT PARTICIPATING IN LARGE RALLY,DESPITE
CONFERENCE CALL THIS WEEK?
vvtv's conference call was disappointing.the stock,i believe, was knocked down excessively. what do you think its true value is at present and what do you predict its value will be at end of year and in 12months.
Posted by: mp at August 16, 2011 12:45 PMvvtv's conference call was disappointing.the stock,i believe, was knocked down excessively. what do you think its true value is at present and what do you predict its value will be at end of year and in 12months.
Posted by: at August 16, 2011 12:46 PM