Are All-Time Highs Supported In CBS?

With shares of CBS (NYSE:CBS) trading around $45, 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  is a mass media company in the United States and internationally. The company has operations in five segments: Entertainment, Cable Networks, Publishing, Local Broadcasting and Outdoor. During 2011, their revenue distribution was as follows: Entertainment 52 percent, Cable Networks 11 percent, Publishing 6 percent, Local Broadcasting 19 percent and Outdoor 13 percent. As the world grows, an increasing part of the population becomes willing and able to adopt entertainment provided by companies like CBS.

T = Technicals on the Stock Chart are Strong

CBS stock saw a modest rise into 2007 followed by a significant drop to about $3 per share. Since then, the stock has recovered and now is now trading near all-time high prices. 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 signal bullish price action in the near-term.

CBS

(Source: Thinkorswim)

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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

24.99%

86%

80%

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

May Options

Flat

Average

June Options

Flat

Average

As of today, 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

9.09%

20%

12.07%

86.21%

Revenue Growth (Y-O-Y)

2.99%

1.58%

-3.07%

11.79%

Earnings Reaction

3.95%

1.05%

6.11%

2.3%

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

P = Excellent Relative Performance Versus Peers and Sector

How has CBS stock done relative to its peers, News Corporation (NASDAQ:NWS), Walt Disney (NYSE:DIS), Time Warner (NYSE:TWX), and sector?

CBS

News Corporation

Walt Disney

Time Warner

Sector

Year-to-Date Return

16.44%

14.82%

14.7%

17.38%

12.31%

CBS has been a relative performance leader, year-to-date.

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Conclusion

CBS provides entertainment as well as other services that are generating a good amount of buzz among consumers who enjoy them. Investors in the stock are certainly happy since the stock is now trading near all-time high prices on support from steadily rising earnings and revenue figures. Relative to its peers and sector, CBS has been a performance leader. Look for CBS to continue to OUTPERFORM.

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