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CBS Corporation (CBS): How Do You Improve on a 32% Return?

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Most investors must be pretty happy with their investment in CBS Corporation (NYSE:CBS). In just the last six months, the stock has jumped 32%. However, I’m a firm believer that companies can always do better. In CBS Corporation (NYSE:CBS)’ case, they are outperforming their peers in a few areas, but the company still has a few things to work on. Investors should watch two areas in particular to try and determine whether the stock’s upward run will continue.

CBS Corporation (NYSE:CBS)

Who Would Have Thought?

With all of the talk in the media about tablets and smartphones stealing time away from television-watching, you would think that any company connected to TV viewing would be in trouble. I’ve heard many times that an increasing number of users are choosing to forgo TV all together, in favor of streaming options, or they are even just cutting the cord completely.

There is just one problem with all of this rampant speculation, it’s flat wrong. Analysts expect The Walt Disney Company (NYSE:DIS), which owns ABC and ESPN, to grow earnings by 12.5% over the next few years. Time Warner Inc (NYSE:TWX), which owns TBS and TNT, is expected to increase earnings by 12.43%. Comcast Corporation (NASDAQ:CMCSA), which just acquired the rest of NBC,  is expected to lead their peers, with a 17.5% growth rate. CBS comes in second only to Comcast at 13.62%. If the TV business is in trouble, you would never know it from these projections.

How Could You Not Be Impressed?

If you want to see what an earnings report should look like, just look through CBS’ quarterly results. The company saw a 6% increase in revenue and a 24% jump in diluted EPS. Since CBS Corporation (NYSE:CBS) is so heavily tied to the CBS network of channels, it was also impressive to see the organic growth from this division. For some inexplicable reason, CBS divides its CBS nationwide, and CBS’ local broadcasting, into two different line items, they are the same business, and thus I’ve combined them here.

The combined Entertainment and Local Broadcasting businesses reported revenue increased 8.06% in the last three months. By comparison, Time Warner’s channels saw revenue increase 2.58%, Disney reported a 6% increase, and Comcast reported an 18.5% decline. Granted, CBS had the advantage of carrying the Super Bowl this year, whereas Comcast’s NBC carried it last year, but even with that in mind, CBS’ results are pretty impressive.

CBS’ strong growth in its largest division boosted the company’s operating cash flow. In fact, based on what I call “core operating cash flow” (net income + depreciation), CBS Corporation (NYSE:CBS) reported the second-best growth rate of its peers. The only company to post faster operating cash flow growth was Time Warner Inc (NYSE:TWX), with a 17.71% increase. CBS grew operating cash flow by 12.87%, and Disney and Comcast fell behind with growth of 10.86% and 6.96% respectively.

What Is CBS Doing For Shareholders?

CBS has retired a larger percentage of shares (4.35%) over the last year than any of its peers. The Walt Disney Company (NYSE:DIS) was the only company to report an increase in its share count of 0.61%, while Comcast retired 2.51% of its outstanding shares, and Time Warner retired 3.4%.

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