The Corporate Restructuring Report-CBS Corporation (CBS) Update
On November 17, 2017, CBS Corporation (NYSE:CBS) completed the spin-off of its radio business, CBS Radio, Inc., and its subsequent merger with Entercom Communications Corp. (NYSE: ETM). In our note dated Novemnber 16, 2017, we had a positive view on CBS Corporation and continue to remain bullish on its prospects. The recently released 4Q17 results showed solid momentum in business with revenues growing in double digits (+11% YOY) and adjusted EPS increasing 8% YOY. The management noted that it expects solid growth across the base in FY18 driven by four key drivers, each of which is likely to add $100 million in incremental revenues: 1) advertising growth aiding by midterm elections; 2) strong performance of CBS All Access and Showtime OTT; 3) retrans and reverse comp fees; and 4) international licensing.
We are bullish on CBS given its control over 'must have sports, premium serialized drama and comedy content, solid growth in retain/reverse comp revenues, near-term skinny bundle opportunities and aggressive investment in OTT platforms (All Access, Showtime and CBS Sports HQ). The company is also evaluating potential merger with Viacom, which in our view, could provide CBS with increased scale and broaden its reach. While near-term ad trends could remain choppy, we remain bullish on the long term growth potential of the US advertising market, to which CBS is among the most exposed in the industry. In our view, CBS is undervalued.
CBS is a mass media company, which operates the following segments: Entertainment, which is consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, Network 10, CBS Interactive, CBS Sports Network, and CBS Films as well as the company's digital streaming services CBS All Access and CBSN; Cable Networks, which consists of Showtime Networks and its digital subscription streaming offering, and Smithsonian Networks; Publishing, which consists of Simon & Schuster's consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books; and Local Media, which consists of CBS Television Stations and CBS Local Digital Media.
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