) competes with media conglomerates like News Corp (
), Disney (
), Time Warner (
) and Viacom (
) primarily in broadcasting, cable networks and publishing
businesses. CBS's main business segments include company owned TV
stations and CBS radio, cable networks, CBS network and TV
licensing product which contribute about 38%, 24%, 16% and 14% to
CBS' stock respectively as per our estimates.
Our price estimate for CBS stands at $27.50
, which is slightly below the market price.
Summary of Key Drivers
CBS Owned TV Station Revenues:
Advertising revenues from company-owned TV stations declined from
about $1.9 billion in 2005 to $1.2 billion in 2009. There was some
recovery in 2010 and we expect these revenues to reach historic
levels of $1.9 billion by end of our forecast period.
CBS Radio Market Share
: This figure has fallen consistently since 2005 followed by a mild
recovery in 2010 amounting to a little over 8%. The prime reason
has been divestiture of some radio assets. Going forward we expect
share to remain flat.
3. CBS Owned TV Stations & CBS Radio EBITDA Margin: This
figure declined from 35% in 2005 to 22% in 2009 before recovering
significantly in 2010. Going forward, we expect margin to sustain
these new levels.
4. Cable Networks EBITDA Margin: This figure has been on a
consistent improvement since 2008 and we expect it to sustain
current levels of 39% to 40%.
CBS Network Ad Pricing
: The ad pricing for CBS network has fallen after its peak in 2007,
amounting to about $3.35 in 2010. Going forward we expect this
figure to grow.
25% upside scenario | $34.50 Trefis price estimate for
1. Profit Margin Improvement (+10%)
Here we specifically refer to CBS owned TV stations and CBS radio
ebitda margin and cable networks ebitda margin, which we believe
may hold potential of rising higher than we forecast. More
specifically, if the first figure was to rise to historical levels
of close to 36% and cable network margins were to rise to over 44%
(which is where Disney's cable networks margins seem to be heading)
by end of our forecast period, there could be an upside of about
10% to our price estimate.
This potential growth could be closely tied to how economy grows
in next few years as well as to what extent will CBS' efforts of
reducing costs in past few quarters will show up in margins (they
already have to a large extent).
Growth in CBS Owned TV Station Revenues (+5%)
CBS owned TV station revenues represents advertisement revenues
earned by several broadcast TV stations owned by the company
through CBS Television Stations Group. These stations produce news
and broadcast public affairs, sports and other programming to serve
their local markets and offer CBS, The CW and MyNetworkTV
programming and syndicated programming.
The dependence on advertising ultimately ties this business to
the state of economy. If the economic recovery and growth in the
U.S. is strong in the coming years, the advertising market will
grow faster than we forecast. If these revenues grow to $2.5
billion by end of our forecast period, there can be an upside of
about 5% to our price estimate for CBS.
3. CBS Radio Market Share Rebounds (+5%)
CBS radio market share refers to the share of CBS radio in total
radio revenues in the U.S. Its market share has decreased in recent
years as the company divested some radio station though we don't
expect this to continue. If instead of staying flat the market
share can rebound to high levels of close to 11% as were seen back
in 2005, there could be an upside of 5% to our price estimate for
What could make this happen? CBS is facing competition from
Internet radio as well as other players like Sirius/XM who are
taking a chunk of radio advertising revenues. The company will need
to play effectively against these players by focusing on content
which is well directed. CBS is already gaining from its focus on
some large markets as evident from its audience share growing in
top 10 markets.
4. CBS Network's Ad Pricing Increases (+5%)
We currently forecast modest growth in this figure. However, if ad
pricing was to grow past $4.50 by end of our forecast period our
price estimate for CBS could see potential upside of 5%. This could
happen if CBS continues to gain major share of audience and
economic growth is favorable. Although we acknowledge that this
might not be an easy task given cable networks are attracting a lot
of younger audiences who tend to be primary targets for
10+% downside scenario | $24 Trefis price estimate for
1. Economy and competition leads to margins suffering
If an unfavorable economy and competition force CBS owned TV
stations and CBS radio ebitda margin and cable networks ebitda
margin below our current expectations by even as much as 3%, there
could be downside of about 5% to our current price estimate.
2. Economy stays sluggish, CBS owned TV station revenue
growth slows down (-4%)
There is still some uncertainty around recovery and growth of
economy. The consumer confidence still seems a bit low although
recent index on factory productivity showed some improvement.
Overall, the growth in the economy hasn't been what many expected
and this could directly impact advertising market. If, as a result,
CBS owned TV station revenue growth stunts, there could be downside
of about 4% to our price estimate.
3. CBS radio loses out to new competitors (-4%)
Although CBS radio seems to be holding its ground against
competitors and fast growing internet radio players like Pandora,
it is interesting to see what could happen to CBS if it loses share
in radio market. Pandora has a critical edge on traditional radio
players through its advertising capabilities. According to Ford's
digital marketing manager, Pandora can use several metrics like
age, gender or musical taste of the user to increase the
effectiveness of advertising. If this really becomes a threat and
CBS indeed loses share, going down to as low as 6% by end of our
forecast period, there could be a downside of 4% to our price