CBS A Great Investment After Falling Over 20%

The media has taken a beating over the last few months from fears of cord cutting by customers. TV consumers are moving away from the traditional way to watch their favorite shows. Netflix, Hulu, and Amazon Prime Instant provides a variety of content and far lower prices than traditional media companies. I believe these fears are overblown and CBS are well position. CBS will be able to profits from this large transition from traditional ways of consuming shows.

You can watch every show and movie you love on your laptop, iPad, and cellphone. Services like Hulu, Netflix, and Amazon Prime Instant need content to feed the endless appetite of consumers.
CBS (CBS) has produced some of the best content on tv and is the most watched primetime network in the country. The company has co-produced some of the most popular shows and series on tv in the last decade. Every streaming service from Netflix to Amazon Prime Instant wants the rights to stream CBS's shows and series.

The company may be signing streaming right deals with these streaming services, however, the company has also introduced its own over-the-top subscription service called CBS All Access. CBS became the first broadcasting company to offer a streaming service in October 2014 for $5.99/month. The service includes nearly all of CBS's current shows and series, plus live streaming of CBS affiliates in 175 markets throughout the United States.

Over the last few months, CBS has seen its shares fall over 30% as a result of investors fears. Investors fear that cable companies will go the way of newspapers. Consumers cord cutting trend has caused investors, and the market in general, to panic, and is causing CBS to be dragged down. CBS only gets 15% of its revenues from its affiliate stations, unlike its competitors who get up to 50% from their affiliate stations.

CBS operates in four business segments with around 80% revenues, and 70% of profits come from its entertainment and local broadcasting units. This makes CBS different from its competitors who primarily rely on cable networks and movie studios. The bulk of CBS's cable network and movie studio units were spun-off into Viacom nearly a decade ago.

CBS's other two business segments are cable networks and publishing units. CBS's cable networks accounts for 15% of revenues and 30% profits. The cable networks are made up of Showtime and College Sports network. Publishing through Simon and Schuster makes up the rest of revenues and profits for CBS.

***The cord cutting by consumers isn't going to hurt CBS like the bulk of their company's competitors. Cable affiliate fees only make up 15% of CBS business ****v.s.**** the industry average of 50%. Also the company is embracing the online streaming and signing streaming rights contracts with Netflix and other streaming services. This will be profitable for CBS since these streaming services want to stream the most popular shows and series that everyone loves.

***Due to the beat down from the market's irrationally causing all media stocks to fall out of fears that are justified for most media companies. However, CBS isn't like the bulk of its competitors and isn't dependent on affiliate fees. Instead, the company has a more diversified and broad source of revenues and profits. At $40/share CBS is a steel selling for a 10% earnings yield *****v.s. the company's historical earnings yield of 8.2%. At its historic earnings yield CBS would sell for $57/share.
Published on Oct 9, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2020. Content published with author's permission.

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