CBS Corporation (NYSE:CBS) is a diversified media and entertainment company with operations in TV, radio stations, book publishing, and more. Despite relatively stagnant revenues since around 2005 (see chart), the company has managed to grow its earnings for the past 4 years. As a result, the share price has risen from the 2009 low of $3.06 to the current level of around $42.50 for a gain of almost 1300% in just four years.
Now, anytime this kind of a gain happens, I strongly advise that investors take at least some of the profits on the table. However, in the case of CBS, I believe this company’s best days are still ahead of it, and it has more room to run.
CBS is one of the two publicly traded companies created when Viacom, Inc. (NASDAQ:VIAB) separated in 2006. One half of the company retained the Viacom name, and included the very well-known cable networks MTV, Nickelodeon, BET and VH1. Also a part of the current Viacom is the Paramount movie studio and its numerous film franchises, such as Star Trek. Of the two parts of the former Viacom, I think that CBS is the more attractively valued right now. Although Viacom trades at a lower valuation than CBS, the projected forward growth rate of 12% is good but it pales in comparison to that of CBS. More on that later…
The remaining parts of the company became CBS, which currently operates in five segments: Entertainment (52% of revenues), which includes the CBS networks and related businesses, Cable Networks (11%) including Showtime, Publishing (5%) which includes the Simon and Schuster book publishers, Local and Broadcasting (19%) which owns and operates 30 local TV stations, and Outdoor (13%) which operates billboards and other displays.
CBS’s general strategy is to grow its revenues and simultaneously become less dependent on advertising-based revenue streams. Advertising currently makes up 63% of the company’s revenue stream, with the rest coming from licensing and distribution (23%) fees (12%) and other revenues (2%). One of the ways CBS is trying to grow its distribution stream is through its deal with Netflix, Inc. (NASDAQ:NFLX).
Netflix and CBS first announced a two-year deal in early 2011 whereby Netflix would have the rights to stream such shows as Star Trek, The Twilight Zone, Cheers, and many others. Recently the company announced the extension of this deal, as both parties have found it a beneficial arrangement. The new agreement includes more shows to offer Netflix’s members (and provide CBS more licensing fees).