Avoid CBS Corporation (CBS) and Buy This Media Stock Instead

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The Walt Disney Company (NYSE:DIS) and CBS Corporation (NYSE:CBS) are two top media stocks. However, their execution and strategies have been remarkably different. While one has been focused on creating value, the other has seen a remarkable rise in the absence of innovation. Below, I present my take on the two.
CBS Corporation (NYSE:CBS)

Still optimistic on Disney

Several months after the multi-billion dollar acquisition of Lucasfilm, The Walt Disney Company (NYSE:DIS) is already planning a new trilogy and numerous spinoffs for characters like Han Solo and Yoda. The first new film is scheduled for a 2015 release. The franchise will now bring in massive recurring business — a new film will be released every 2-3 years.

Since Disney now holds all rights on all Star Wars divisions, including LucasArts and Obsidian Entertainment, the company is now in talks to revive the original trilogy through a series of games.

Thus, while investors have largely complimented the transaction, not enough attention has been given to the synergistic value. Increasing scale for the sake of empire-building is not necessarily creating value. By contrast, Disney will be rolling the Star Wars brand into video games, movies, shows, licensing, theme parks, and you name it. Disney offers a breadth of business opportunities that are just not possible for Lucasfilm to pursue alone.

On Feb. 5, Disney reported its first-quarter 2013 earnings, which showed a year-long increase of 5% to $11.3 billion — beating expectations by $560 million. At around 19.4 times forward earnings, the stock is getting fairly expensive.

Thus, the main reason to go with Disney at this point has more to do with stability and predictability than value. The most recent price target out by RBC Capital Markets puts a $71 price target on the stock, which indicates only 10% upside.

Avoid CBS; consider competitor

CBS Corporation (NYSE:CBS) finished 2012 with quarterly revenue growth of only 2% year over year — missing expectations by $30 million. EPS of $0.64 came out 6 cents behind expectations. To offset, CBS Corporation (NYSE:CBS) announced a $1 billion buyback plan for 2013, which just about doubles what was returned through repurchases last year. And the company has also announced plans to explore programming deals with Intel’s web-based TV service that is about to enter the market.

Analysts forecast CBS Corporation (NYSE:CBS)’s EPS growing by 9.9% over the next five years. Assuming expectations are met, 2017 EPS will come out to $4.50.

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