CBS Investors Look To 2018; This Year Will Be A Transition Year

Although CBS Corporation CBS could generate flattish EBITDA and earnings growth in 2017, the company’s 2018 earnings potential is significant due to “a number of unique catalysts,” Loop Capital Markets’ David W. Miller said in a report. He maintains a Buy rating on CBS, while raising the price target from $67 to $77.

2017: A Transition Year

CBS had broadcast the Super Bowl in February 2016, which had boosted its core entertainment revenue due to record ad rates for the game. “Obviously, it will be very difficult to comp against that in Q1 2017,” Miller noted, while projecting a 9.5 percent year-over-year decline in core Entertainment revenue in Q1 2017.

Moreover, 2017 is not a political year, and the estimated ~$200 million spent by each of the super-PACs between mid-Q3 and mid-Q4 of 2016 would be absent this year.

Miller expects the company’s earnings to be down 0.3 percent in 2017, although core EPS could record 7.2 percent growth due to “continued equity shrinkage.”

2018: Notable Growth

The analyst identified three “notable catalysts” for 2018:

1. CBS should have a banner international syndication year in 2018, with "Bull," "Scorpion" and "Madame Secretary" resulting in revenue growth of at least 10 percent, at margins of ~35 percent.
2. CBS will begin being included in skinny bundles being promoted by Sling and DirecTV Now from around mid-year 2017. This means 2018 would be the first full-year of inclusion, with at least $3.00 per subscriber.
3. About 10 percent of the company’s retransmission fees would be increased to current market rates by Q4 of 2017, “yielding 2018 as the first full-year existent under those new economics.”