How To Value CBS In Light Of Radio Segment Spinoff

Shares of CBS Corporation CBS have been on an upswing since September 2016, backed by several positive headlines and strong financial results.

The company would face two quarters of tough comps before “a meaningful growth reacceleration” beginning in the second half of 2017, Benchmark’s Daniel Kurnos said in a report.

Kurnos maintained a Buy rating on the company, while raising the price target from $67 to $74. He recommended buying shares on any short-term pullback opportunity, citing “a handful of potential positive catalysts on the horizon over the next 24 months.”

CBS may benefit in Q3 2017 from the licensing of NCIS. OTT [over the top] revenue may be boosted by the delayed launch of "Star Trek," which is now expected in May. Moreover, carriage deals with Hulu and Alphabet Inc GOOGL may be followed by deals with DirecTV Now.
Kurnos added that Charter and DISH Network Corp DISH would be coming up for renewal in H2 2017.

Radio Spinoff

The Publishing and Radio assets may generate more than $1 billion, eliminating drags on revenue growth without significantly impacting cash flow generation.

“We are establishing a new sum-of-the-parts valuation for CBS in light of the pending Radio IPO, attributing eliminations on a revenue-weighted basis,” the analyst wrote.

CBS has premium ratings, a vast content library and support from a growing OTT business via All Access and Showtime. A 5x multiple had been used for both Radio and Publishing to arrive at the new price target, Kurnos mentioned.