ModernGraham Valuation: CBS Corp (CBS)
Company Profile (obtained from Google Finance): CBS Corporation is a mass media company. The Company has operations in segments, which include Entertainment, Cable Networks, Publishing, Local Broadcasting and Outdoor. During the year ended December 31, 2011, contributions to the Company’s consolidated revenues from its segments were Entertainment 52%, Cable Networks 11%, Publishing 6%, Local Broadcasting 19% and Outdoor 13%. During 2011, it generated approximately 15% of its total revenues from international regions. Effective March 26, 2013, the Company acquired 50% interest in The TV Guide Network from Lions Gate Entertainment Corp. In June 2013, the Company acquired TV Guide Digital, which includes the popular TVGuide.com and TV Guide Mobile properties. In October 2013, Platinum Equity and CBS Corporation announced that an affiliate of Platinum Equity acquired the assets of CBS Outdoor International (CBSO International).
Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
Key Data:
| MG Value | $84.78 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $31.93 |
| Value Based on 0% Growth | $18.72 |
| Market Implied Growth Rate | 10.00% |
| Net Current Asset Value (NCAV) | -$18.86 |
| PEmg | 28.49 |
| Current Ratio | 1.30 |
| PB Ratio | 3.90 |
Balance Sheet – 9/30/2013Â
| Current Assets | $4,892,000,000 |
| Current Liabilities | $3,753,000,000 |
| Total Debt | $5,944,000,000 |
| Total Assets | $25,895,000,000 |
| Intangible Assets | $15,024,000,000 |
| Total Liabilities | $16,224,000,000 |
| Outstanding Shares | 601,000,000 |
Earnings Per Share
| 2013 (estimate) | $3.00 |
| 2012 | $2.48 |
| 2011 | $1.90 |
| 2010 | $1.04 |
| 2009 | $0.33 |
| 2008 | -$17.43 |
| 2007 | $1.70 |
| 2006 | $1.79 |
| 2005 | -$10.54 |
| 2004 | -$8.78 |
| 2003 | $0.82 |
Earnings Per Share – ModernGrahamÂ
| 2013 (estimate) | $2.20 |
| 2012 | $0.42 |
| 2011 | -$1.23 |
| 2010 | -$2.71 |
| 2009 | -$4.66 |
| 2008 | -$6.99 |
Conclusion:
CBS Corp is a company that has seen a surge over the last few years, growing EPSmg (normalized earnings) from -$6.99 in 2008 to an estimated $2.20 for 2013. Â However, the company does not satisfy the requirements for either the Defensive Investor or Enterprising Investor. Â The current ratio is too low for either investor type, the company had some negative earnings years in the 10 year period, the earnings have not grown sufficiently over the 10 year period, and the PEmg ratio is too high. Â As a result, Intelligent Investors seeking to follow Benjamin Graham’s value investing methods may wish to seek other opportunities by reviewing other companies that do pass these requirements. Â From a valuation side, due to the solid growth in earnings recently, the company fares well, and would appear to be undervalued at the present time.
What do you think?  Do you agree that CBS Corp is undervalued?  What would be your assessment?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
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Disclaimer: Â The author did not hold a position in CBS Corp (CBS) at the time of publication and had no intention of changing that position within the next 72 hours.
Photo Credit: Â Andrew Magill
