Media Entertainment Stocks

CBS Corporation Valuation – November 2015 Update $CBS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CBS Corporation (CBS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CBS Corporation is a mass media company. The Company operates through segments, including Entertainment, Cable Networks, Publishing and Local Broadcasting. The Entertainment segment is composed of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, CBS Interactive and CBS Films. The Cable Networks segment is composed of Showtime Networks, which operates program services, such as Showtime, The Movie Channel, and Flix; CBS Sports Network, and Smithsonian Networks, which operates a program service, Smithsonian Channel. The Publishing segment is composed of Simon & Schuster, which publishes and distributes consumer books under imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books. The Local Broadcasting segment is composed of CBS Television Stations, the Company’s 30 owned broadcast television stations, and CBS Radio, through which the Company owns and operates 117 radio stations in 26 United States markets.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CBS – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $23,977,441,743 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.62 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -190.63% Fail
6. Moderate PEmg Ratio PEmg < 20 13.29 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.15 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.62 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.99 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CBS value Chart November 2015

EPSmg $3.79
MG Growth Estimate 15.00%
MG Value $145.81
Opinion Undervalued
MG Value based on 3% Growth $54.92
MG Value based on 0% Growth $32.19
Market Implied Growth Rate 2.40%
Current Price $50.35
% of Intrinsic Value 34.53%

CBS Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, and the high PB ratio.  The Enterprising Investor is only initially concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $1.23 in 2011 to an estimated gain of $3.79 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.4% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on CBS Corporation (CBS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CBS Charts November 2015

Net Current Asset Value (NCAV) -$26.46
Graham Number $33.41
PEmg 13.29
Current Ratio 1.62
PB Ratio 4.15
Dividend Yield 1.19%
Number of Consecutive Years of Dividend Growth 5

 

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Most Recent Balance Sheet Figures

Total Current Assets $5,555,000,000
Total Current Liabilities $3,432,000,000
Long-Term Debt $8,476,000,000
Total Assets $24,239,000,000
Intangible Assets $12,660,000,000
Total Liabilities $18,360,000,000
Shares Outstanding (Diluted Average) 484,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.00
Dec14 $5.27
Dec13 $3.01
Dec12 $2.39
Dec11 $1.92
Dec10 $1.04
Dec09 $0.33
Dec08 -$17.43
Dec07 $1.73
Dec06 $2.15
Dec05 -$8.98
Dec04 -$20.37
Dec03 $1.61
Dec02 $0.82
Dec01 -$0.13
Dec00 -$0.67
Dec99 $0.45
Dec98 -$0.21
Dec97 $1.04
Dec96 $3.23
Dec95 $0.43

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.79
Dec14 $3.36
Dec13 $2.19
Dec12 $0.40
Dec11 -$1.23
Dec10 -$2.68
Dec09 -$4.50
Dec08 -$7.47
Dec07 -$3.25
Dec06 -$5.48
Dec05 -$8.00
Dec04 -$6.26
Dec03 $0.67
Dec02 $0.15
Dec01 -$0.09
Dec00 $0.21
Dec99 $0.76

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Media Entertainment Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
CBS Corporation Analysis – August 2015 Update $CBS
47 Companies in the Spotlight This Week – 5/16/15
58 Companies in the Spotlight This Week – 1/31/15

Other ModernGraham posts about related companies

Time Warner Cable Inc. Valuation – November 2015 Update $TWC
News Corporation Valuation – November 2015 Update $NWSA
The Best Companies of the Media Entertainment Industry – October 2015
Twenty-First Century Fox Inc. Valuation – October 2015 Update $FOXA
Graham Holdings Company Analysis – September 2015 Update $GHC
Scripps Networks Interactive Inc. Analysis – September 2015 Update $SNI
AMC Networks Inc. Analysis – Initial Coverage $AMCX
CBS Corporation Analysis – August 2015 Update $CBS
Twenty-First Century Fox Analysis – July 2015 Update $FOXA
Discovery Communications Analysis – 2015 Annual Update $DISCA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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