CBS expected to soar on content, retrans income


CBSWells Fargo analyst Marci Ryvicker thinks that the current conventional wisdom on CBS income potential is on the low side. Deals to put its content on outlets like Netflix and Intel, along with increases in retransmission consent on one side and reverse compensation on the other are cause for optimism and an upgrade.

As Ryvicker put it, “We see A LOT of potential upside ahead (even outside of the REIT) and raise our valuation range to $51-53.”

Syndication, video-on-demand, increased sales possibilities tied to improved ratings measurements down the road, projected increases in retransmission consent and a growing stream of reverse compensation revenue for CBS Television Network all figure into the Well Fargo calculation.

Ryvicker wrote, “We conservatively calculate an incremental $3-4/share of potential upside in the near term. Specifically, we point to potential content deals involving Dexter, Californication, CSI:NY, The Good Wife (yes, there could be more), Vegas, Elementary, Netflix and Intel. Putting numbers to this, we conservatively calculate an incremental $610MM in revenue, $244MM in OIBDA and $0.26 in EPS – all of which could equate to another $3-4 of equity value per share. Longer term, there is significant upside potential from a better ad environment, a more comprehensive measurement system, and an expanding retrans pie.”

Deals with DirecTV, Verizon, Cablevision, AT&T and Charter support the optimistic forecast on the retransmission end of the equation.

Ryvicker noted that the biggest headwind facing CBS is a loss of local revenue due to the current absence of broadcast rights to NBA’s Los Angeles Lakers.

Bottom line: CBS is expected to outperform.