CBS Corp. (CBS, Financial) is one of the original media outlets and home to incredible programming like the National Football League, Star Trek Discovery, Big Bang Theory and The Late Show, among many others. Despite the hype around new digital media, the internet has not put CBS out of business. The television is still the best place to watch programs. CBS and other broadcast networks are the only outlets that reach almost all of the 116 million households in the U.S.
The way we consume has changed, and CBS remains in a leading position. Whether a consumer is cord cutting or not, chances are they want to watch something CBS has to offer. The new upstarts looking to compete with big cable won’t have much if any impact on that long term.
The company’s financial position has never been better. In the last 12 months, it booked $1.9 billion in net profit on $14.5 billion in sales, and it only spent $165 million on capex. In the last decade, thanks to share buybacks, CBS has upped its earnings per share to over $5 and its dividend from 20 cents to 77 cents. In fact, since 2009, CBS has bought back over 300 million shares, reducing its total by 44%.
In that time, the stock price has seen an equally incredible rise, shooting from below $4 in March of 2009 to above $50 a share in 2013, and bouncing back and forth. If you’re waiting on a market collapse like 2009 to buy stocks again, then now is probably not the time for CBS. The dividend is not that good.
If you already own it, however, the chances that it will slip back to penny-stock level are very low. Even though the company produces roughly the same amount of revenue it did 10 years ago, it’s much more valuable. Again, thank you, share buybacks. They’re not as evil as politicians would have you think.
In terms of value, the company is priced below both industry averages and its own historical multiples. By the end of fiscal year 2020, CBS is expecting to book north of $6.00 per share in earnings. If the shares get priced anywhere close to the historical average (18.2x), the stock would more than double. This is more of a case against poor valuation than long-term growth.
The real question is whether CBS is worth more than $29 billion ($19 billion market capitalization plus the $10 billion in net long-term debt), and I think that answer is yes. That makes the company both a buy for common stock shareholders and a potential takeover target for any company trying to compete with the rise of online entertainment.
Disclosure: I am not long or short CBS.
