The cable operator accused the network of unreasonably jacking up the price it demanded for Time Warner Cable Inc (NYSE:TWC) to present CBS Corporation (NYSE:CBS)’ shows, including such hits as How I Met Your Mother as well as David Letterman’s late-night program, sports events, and 60 Minutes. CBS took a hit in the court of public opinion, as news writers had a field day putting CBS against the walls.
But Wall Street observers predictably shrugged off the bad publicity. Investors have a way of focusing instead on what really matters. Here, the news is good right now for CBS Corporation (NYSE:CBS), though Wall Street wonders whether CBS can hope to continue its long winning streak.
Analyst Brian Wieser of Pivotal Research, for example, has raised his year-end 2014 target price for CBS Corporation (NYSE:CBS) to $62 from $53 for the end of this year. He maintains a “buy” investment rating on the CBS shares, allowing for the 14% upside growth contained in his price target from the current trading levels.
“The increase is mostly due to our expectations for share buybacks (current expectations call for the share count to fall by 4%) and for mechanical reasons (i.e. the rolling forward of the year against our 9% cost of capital),” Wieser told investors in a report.
Broadcasters like CBS Corporation (NYSE:CBS) tend to worry Wall Street because they are prone to suffer strongly from economic downturns in terms of advertising losses. Wall Street craves consistent, steady results. While there is no way for anyone to predict television viewers’ trends and tastes, CBS Chief Executive Les Moonves has had an uncanny penchant for picking popular television shows, from Everybody Loves Raymond and Survivor to the current crop of winners.
“We are the least sexy network,” Moonves said told investors last September at a Goldman Sachs conference. “We get less buzz. All we do is get more viewers and make more money.”
And, he might well have added, we make our shareholders happy — very happy, in fact. CBS shares have climbed 37% versus 17% for the Standard & Poor’s 500 index on a year-to-date basis. Going out a little longer than that, the discrepancy is even more profound. CBS is up 44% in the past year against the S&P’s rise of 18%.
Want more evidence? In 2011, CBS jumped 42%, while the S&P index remained flat. In 2010, CBS outdid it, 36% to 13%. Going back to 2009, the margin was even more stark — 72% to 23%.
What is CBS’ secret?
Under the redoubtable Moonves, the company has flourished by presenting a slate of shows that appeal to the audience that Madison Avenue craves — the demographic sweet spot of 18-to-34-year-old TV watchers. Moonves has shown a flair, too, for solving potentially thorny problems. Remember when Charlie Sheen, the star of the immensely popular comedy series Two and a Half Men self-destructed and then had to be replaced with someone of comparable star quality? Enter Ashton Kutcher, and the program has rolled on.
When Moonves took the CBS helm some two decades ago, the network was identified with a creaky demographic because of its aging programming. Moonves replaced Murder She Wrote and that ilk with programs that were more appealing to a younger audience — and advertisers began to notice.
Keyed by its Monday prime-time lineup, CBS has established a beachhead reminiscent of the old NBC fortress “Must-See TV” on Thursday nights. While NBC, for instance, has struggled to come up with hits, Moonves has delivered again and again.
Barclays noted in a report on Aug. 16:
CBS appeared 5 times in this week’s list of 10 most viewed primetime shows — Under The Dome continued its successful run with 10.4m Live + Same Day viewers, even without distribution from Time Warner Cable’s 11.7m subscribers. Among the 18-49 demo, CBS saw 4 of its shows crack the top 10, with three airings of Big Brother joining Under The Dome.