Media Entertainment Stocks

CBS Corp Valuation – February 2019 $CBS

Company Profile (excerpt from Reuters): CBS Corporation, incorporated on November 10, 1986, is a mass media company. The Company operates through four segment: Entertainment, Cable Networks, Publishing and Local Media. The Entertainment segment comprises the CBS Television Network; CBS Television Studios; CBS Studios International and CBS Television Distribution; CBS Interactive; CBS Films; and the Company’s digital streaming services, CBS All Access and CBSN. The Cable Networks segment comprises Showtime Networks, which operates its subscription program services, Showtime, The Movie Channel, and Flix. The Publishing segment comprises Simon & Schuster, which publishes and distributes consumer books under imprints, such as Simon & Schuster, Pocket Books, Scribner and Gallery Books. The Local Media segment comprises CBS TV Stations, and CBS Local Digital Media. Its businesses span the media and entertainment industries, including the CBS TV Network, cable networks, content production and distribution, television stations, Internet-based businesses, and consumer publishing. It focuses on exhibiting its content on multiple digital platforms, including digital streaming services, as well as third-party live television streaming offerings.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CBS – February 2019

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 $18,347,191,065 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.51 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
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 168.39% Pass
6. Moderate PEmg Ratio PEmg < 20 15.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.39 Fail
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 1.51 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.62 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.25
MG Growth Estimate -0.52%
MG Value $24.24
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $47.08
MG Value based on 0% Growth $27.60
Market Implied Growth Rate 3.30%
Current Price $49.02
% of Intrinsic Value 202.26%

CBS Corporation Common Stock does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.36 in 2014 to an estimated $3.25 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into CBS Corporation Common Stock revealed the company was trading above its Graham Number of $24.44. The company pays a dividend of $0.72 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 15.1, which was below the industry average of 31.72, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-33.02.

CBS Corporation Common Stock scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$33.02
Graham Number $24.44
PEmg 15.10
Current Ratio 1.51
PB Ratio 7.39
Current Dividend $0.72
Dividend Yield 1.47%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $6,040,000,000
Total Current Liabilities $3,993,000,000
Long-Term Debt $9,465,000,000
Total Assets $21,068,000,000
Intangible Assets $7,571,000,000
Total Liabilities $18,554,000,000
Shares Outstanding (Diluted Average) 379,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.14
Dec2017 $0.88
Dec2016 $2.81
Dec2015 $2.89
Dec2014 $5.27
Dec2013 $3.01
Dec2012 $2.39
Dec2011 $1.92
Dec2010 $1.04
Dec2009 $0.33
Dec2008 -$17.43
Dec2007 $1.73
Dec2006 $2.15
Dec2005 -$8.98
Dec2004 -$20.37
Dec2003 $1.61
Dec2002 $0.82
Dec2001 -$0.26
Dec2000 -$1.34
Dec1999 $0.90
Dec1998 -$0.42

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.25
Dec2017 $2.52
Dec2016 $3.32
Dec2015 $3.42
Dec2014 $3.36
Dec2013 $2.19
Dec2012 $0.40
Dec2011 -$1.23
Dec2010 -$2.68
Dec2009 -$4.50
Dec2008 -$7.47
Dec2007 -$3.25
Dec2006 -$5.48
Dec2005 -$8.01
Dec2004 -$6.32
Dec2003 $0.58
Dec2002 $0.03

Recommended Reading:

Other ModernGraham posts about the company

CBS Corporation Valuation – April 2018 $CBS
7 Best Undervalued Stocks of the Week – 9/3/16
CBS Corporation Valuation – August 2016 $CBS
6 Best Stocks For Value Investors This Week – 5/14/16
CBS Corporation Valuation – May 2016 $CBS

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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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