Is CBS Stock a Buy?

With shares of CBS (NYSE:CBS) trading around $55, 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 segments that include Entertainment, Cable Networks, Publishing, Local Broadcasting, and Outdoor. Consumers seek entertainment of various forms and through an array of platforms at an increasing rate. Through its segments, CBS is able to fulfill consumer needs, as they continue to release content that excites the masses. Consumers around the world always seek varied forms of entertainment, and CBS is dedicated to delivering amazing media, which can only lead to growth and rising profits well into the future.

CBS’s strategy of using its status as the number one network in America to negotiate high retransmission fees from pay-TV providers is apparently working. The company reported that profits rose 11 percent in the second quarter. Also contributing to that gain is CBS’s willingness to license its programming to online streaming services like Netflix (NASDAQ:NFLX), and Amazon’s (NASDAQ:AMZN) Prime Instant Video.

T = Technicals on the Stock Chart are Strong

CBS stock has seen a consistent uptrend in the last several years. The stock is now trading at highs for the years, and does not see any significant signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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.

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

22.57%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is 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 small 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 what that means for CBS’s stock.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth. In addition, the last four quarterly earnings announcement reactions can 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

16.92%

27.78%

9.32%

20.00%

Revenue Growth (Y-O-Y)

6.42%

6.43%

2.99%

1.58%

Earnings Reaction

3.80%*

2.04%

3.95%

1.05%

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

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has CBS stock done relative to its peers, Comcast (NASDAQ:CMCSA), Twenty-First Century Fox (NASDAQ:FOXA), Walt Disney (NYSE:DIS), and the overall sector?

CBS

Comcast

Twenty-First Century Fox

Walt Disney

Sector

Year-to-Date Return

44.42%

23.15%

36.99%

31.39%

25.18%

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

Conclusion

CBS is one of the largest nationwide providers of entertainment and mass media services, and the company recently reported earnings that impressed investors. The stock is now trading at highs for the year, and seems like it wants to keep going. Over the last four quarters, investors in the company have been excited, as earnings and revenue figures continue to grow. Relative to its peers and sector, CBS has been a year-to-date performance leader. Look for CBS to OUTPERFORM.

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