Both Ken Griffin’s Citadel Investment Group and David Einhorn’s Greenlight Capital own between 4 and 4.6 million shares of CBS (CBS), making two of the largest hedge fund holders of this stock (see more stocks owned by Greenlight Capital and the rest of Citadel's portfolio). Greenlight actually sold off some of its shares in the first three months of 2012 but still had a large position at over 2.7% of Greenlight’s 13F portfolio. Greenlight had initiated this position by buying 5 million shares in the third quarter of 2011. Citadel had held a fairly small position at the end of 2011 and then nearly tripled it by the end of March. So far this year the stock is up a little over 12%, though it is down nearly 10% since March 31. As a result, investors may still be able to get into CBS at a lower price than top hedge funds were willing to hold it at.
CBS reported a good first quarter of 2012, with revenue increasing by 12% over the first quarter of 2011 and net income increasing 80% (from $202 million to $363 million). Most of the revenue growth occurred in CBS’s top segment, Entertainment (which includes the CBS network itself and is responsible for over half the company’s revenue). Also experiencing growth were CBS’s Cable Networks division (which includes, for example, Showtime and CBS Sports) and its small Publishing division (which is Simon and Schuster). The rest of the company had very little change in revenues. Despite this recent growth, CBS currently trades at a trailing P/E of a little over 14 and a forward P/E of 11. Combined with a small dividend yield of 1.3%, CBS could be a good value investment.
One potential value creation possibility for CBS was discussed in an investor call by Karsch Capital Management, a hedge fund with $2.6 billion 13F portfolio that initiated a 1.8 million share position in the first three months of 2012 (see other Karsch stock picks). Karsch believes that CBS may be able to sell their Outdoor division- a billboard business that might not be a good strategic fit with the rest of the company- and return the cash to shareholders through a share buyback. If this occurs, the company’s stock price could rise accordingly.
CBS’s peers include News Corp (NWS), Disney (DIS), and Comcast (CMCSA), the media conglomerates that own FOX, ABC, and NBC respectively. While CBS does not have some of the attractive cable properties of these companies or other valuable assets, its network television division tends to offer popular programming that often beats the other networks on viewership. CBS also carries a lower P/E than NWS’s 16.5, DIS’s 17, and CMCSA’s 20. These peers also have comparable dividend yields to CBS. However, CBS trails all three companies on a year-to-date basis, with NWS up about 20%, DIS up about 27%, and CMCSA up about 32%. Of course the company can also be compared to Viacom (VIAB), its sibling company under Sumner Redstone’s National Amusements. Viacom carries a P/E of about 14, similar to CBS, and is experiencing flat growth. Viacom and News Corp are also included in the 10 most popular services stocks among hedge funds.