It Might Be A Good Time To Buy CBS Shares

CBS Corporation CBS declined about 9 percent thus far in September, in sympathy with other media stocks. They were on the wane over the past few weeks after Walt Disney Co DIS provided below-consensus guidance for 2017 and Comcast Corporation CMCSA announced that third quarter subscriber numbers will decline.

Despite CBS faring the worst among the traditional media stocks, Rosenblatt Securities believes the company's retrains and reverse comp provides a predictable earnings growth stream, given that it's driven by payment from affiliated on a per market basis and not by subscriber numbers.

Analyst Alan Gould estimates that the earnings per share of CBS will grow at 15 percent CAGR through 2020, while shares trade at only 13 times this year's estimated earnings per share of $4.50.

Therefore, the analyst recommends buying CBS shares on the dip. Rosenblatt Securities reiterated its Buy rating and $80 price target on CBS.

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The firm believes the next NFL licenses are likely to be much more expensive for networks despite lower ratings, given the interest by the digital companies. Ratings drive future license fees, the firm noted.

Additionally, Rosenblatt noted that CBS seems to have successfully outbid Lachlan Murdoch and James Packer for the control of Network Ten, one of the three main broadcast networks in Australia. The firm expects CBS to pay about $200 million for the entity, with the deal expected to close in the fourth quarter.

Rosenblatt believes the next data point that could drive the stock higher will be the ratings for the next season and the reception for "Star Trek: Discovery." The firm thinks this will be the most important new content to be added to CBS All Access, its OTT service.

Rosenblatt also pointed out that advertising comparison becomes easier in the second-half of the fiscal. The firm expects the radio spin and exchange offer to close in the fourth quarter. The firm estimates that the transaction will lower CBS shares by 17 million, marking effectively a $1.1 billion share buyback program, representing 3.5 percent of outstanding CBS shares.

"We continue to expect the licensing or syndication of Scorpion, NCIS New Orleans and Madam Secretary this year, but do not believe any deals have been struck yet," Rosenblatt said.