Is CBS a Buy Now?

With shares of CBS (NYSE:CBS) trading around $62, is CBS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

CBS operates as a mass media company in the United States and abroad. The company operates in the entertainment, cable networks, publishing, local broadcasting, and outdoor segments. Consumers seek entertainment of various forms and through an array of platforms at an increasing rate, and through its segments, CBS is able to fulfill consumer needs as it continues to release content that excites the masses. Consumers around the world always seek varied forms of entertainment, and CBS is dedicated to delivering that media, which can only lead to growth and rising profits well into the future.

CBS took the final step to carve off its billboard advertising business, CBS Outdoor. The question now is what CBS will do with the money it has raised. The media company on Wednesday unveiled details of its long-expected tax-free “split-off,” under which it will divest its 81 percent stake in its outdoor unit. CBS announced an exchange offer: Its shareholders will be offered the chance to swap some or all of their shares for stock in the billboard company. The exchange offer follows CBS’s sale of a minority stake in CBS Outdoor in an initial public offering earlier in the spring.

T = Technicals on the Stock Chart Are Strong

CBS stock has been flying higher over the last several years. The stock is currently trading near all-time highs and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, CBS is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of CBS options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

CBS options

34.52%

70%

68%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Wednesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on CBS’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for CBS look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

13.04%

26.4%

33.33%

16.92%

Revenue Growth (Y-O-Y)

-4.55%

5.76%

11.27%

6.42%

Earnings Reaction

-2.18%

4.46%

-4.54%

3.86%

CBS has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with CBS’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has CBS stock done relative to its peers – Comcast (NASDAQ:CMCSA), 21st Century Fox (NASDAQ:FOXA), and Disney (NYSE:DIS) — and sector?

CBS

Comcast

21st Century Fox

Disney

Sector

Year-to-Date Return

-2.45%

1.34%

2.5%

-18.8%

-3.35%

CBS has been an average performer, year-to-date.

Conclusion

CBS is one of the largest nationwide providers of entertainment and mass media services. The company took the final step to carve off its billboard advertising business, CBS Outdoor. The stock has been flying higher over the last several years and is now trading near all-time highs. Over the last four quarters, earnings and revenues have been increasing which has left investors pleased. Relative to its peers and sector, CBS has been an average year-to-date performer. Look for CBS to OUTPERFORM.

More From Wall St. Cheat Sheet: