Is CBS a Buy at These Prices?

With shares of CBS (NYSE:CBS) trading around $47, 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 internationally. 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 continue to 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.

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T = Technicals on the Stock Chart are Strong

CBS stock has been a strong path towards higher prices over the last several years. This path has taken the stock to all-time high prices where it is now consolidating and potentially setting-up to head higher. 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 near its rising key averages which signal 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

33.08%

66%

63%

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

July Options

Flat

Average

August 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 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

27.78%

9.32%

20%

12.07%

Revenue Growth (Y-O-Y)

6.43%

2.99%

1.58%

-3.07%

Earnings Reaction

2.04%

3.95%

1.05%

6.11%

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

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P = Excellent Relative Performance Versus Peers and Sector

How has CBS stock done relative to its peers, Comcast (NASDAQ:CMCSA), News Corp. (NASDAQ:NWS), Walt Disney (NYSE:DIS), and sector?

CBS

Comcast

News Corp.

Walt Disney

Sector

Year-to-Date Return

25.02%

8.57%

21.91%

29.06%

19.18%

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

Conclusion

CBS is a provider of entertainment and mass media solutions to a growing global audience that stands ready to enjoy its content. The stock has been on a strong path towards higher prices that has taken it to all-time highs, where it is now consolidating. Over the last four quarters, the company has seen rising earnings and revenue figures that have really sat well with investors. Relative to its peers and sector, CBS has been a year-to-date performance leader. Look for CBS to continue to OUTPERFORM.

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