Should You Take a Chance With CBS?

With shares of CBS (NYSE:CBS) trading around $60, 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 Outdoor is snapping up billboards in New York’s Times Square and Los Angeles’s Sunset Strip as part of a move to capture more of the steadily growing outdoor advertising market. The company, which spun off from broadcaster CBS just four months ago, will pay $690m in cash to Van Wagner for the U.S.’s largest private portfolio of outdoor advertising assets. CBS Outdoor will get 1,100 billboards in 11 top markets, including Las Vegas, San Francisco and Miami, which generated $206m in revenue last year. Privately held Van Wagner will focus on its remaining sports, blimp and aerial units. The deal will help CBS Outdoor, which has about 20 per cent of the U.S. outdoor market, attract more of the deep-pocketed national advertisers who want to put their brands in front of consumers in the biggest cities. Billboards, one of the oldest forms of advertising, are still tracking strong growth in the U.S. as traditional billboards are converted to digital displays and people spend more time out of their homes. “Our audience keeps growing because the mobile connected consumer is spending more time out of the home and we can deliver the eyeballs advertisers want to reach,” said Jeremy Male, CBS Outdoor chief executive. Outdoor advertising spending in the US is projected to grow 3.6 per cent to $7.21bn this year, according to eMarketer. That is faster than the 3.3 per cent growth rate for television ads.

T = Technicals on the Stock Chart Are Mixed

CBS stock has been flying higher over the last several years. However, the stock is currently pulling back and may need time to consolidate. 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 between its rising key averages which signal neutral price action in the near-term.

CBS

(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

31.97%

50%

48%

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

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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), Disney (NYSE:DIS), and sector?

CBS

Comcast

21st Century Fox

Disney

Sector

Year-to-Date Return

-3.50%

4.96%

-6.13%

12.32%

2.91%

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 stock has been flying higher over the last several years, but is currently pulling back. 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. WAIT AND SEE what CBS does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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