Citigroup downgraded shares of CBS (CBS) and Scripps Networks (SNI) from "Buy" to "Neutral." Citigroup cited a fall-off in cable ratings. The fall-off in cable ratings may be temporary. We'll take a look at these two enterprises and Comcast (CMCSA) to see if we can capitalize on the potentially temporary fall-off in ratings.
CBS
Sales declined at an annual pace of almost 3 percent while earnings increased at just over 1 percent. Earnings this year are reported at increasing at 81.8 percent. The pace of earnings growth is forecasted to slow next year to 15.3 percent. The next five years, earnings are forecasted to increase at a 14.2 percent annual pace.
Gross, operating, and profit margin are 41.2, 17.8, and 9.3. A roughly 10 percent profit margin is sound. Return on equity is 13 percent; institutions own 86 percent of CBS.
Debt-to-equity is 0.60 and the quick ratio is 1.22. The firm is both liquid and solvent. The price-to-earnings ratio is 17.5 and forward P/E is 12.3.
CBS is trading above the rising 50-day simple moving average and above the long-term trend line that goes back to 2009. Shares are in the markup stage after undergoing accumulation and will go through distribution next.
Comcast
Sales at Comcast increased at a 17.5 percent annual pace the past five years while earnings increased at 16.3 percent. Earnings this year are reported at 16.1 percent pace and next year 16.2 percent. Earnings the next five years are forecasted to increase at 15.2 percent. Steady earnings growth, to some investors, is ideal.
Gross, operating and profit margins are 32.9, 19.2, and 9.2 percent respectively. The return on equity is 9.1 percent. Institutions own 83 percent.
The debt-to-equity ratio is roughly 0.8 and the current ratio is 0.65. Comcast has a higher debt level and is less liquid than CBS, notwithstanding, CBS doesn't provide cable television service and that may account for a portion of the difference in liquid and solvency ratios.
The price-to-earnings ratio is 19.1 and 13.8 for forward earnings.
Comcast is trading above the rising 50-day moving average. The long-term up trendline goes back to 2009. Shares are up 25.4 percent year-to-date.
Scripps Networks Interactive, Inc.
Sales the past five years grew at an annual pace of 9.4 percent while earnings grew at 15 percent. This year earnings are reportedly increasing at 20.5 percent and next year at 15 percent. The forecast for the next five years is 12 percent annual earnings growth.
Operating and profit margins are 42.8, 30.7 respectively while return-on-equity is 27.4 percent. Institutions own 74.7 percent of shares.
Debt-to-equity is 0.82 and the current ratio is 7.37; the enterprise is very liquid. Price-to-earnings is 17.1 and the forward P/E declines to 13.6.
Shares are trading above the rising 50-day simple moving average and above the 45 degree trendline on the 3-box reversal point & figure chart.
Dow Theory
According to the rules of Dow Theory, we are in a bull market. Notwithstanding, the Transportation Average has failed to reaffirm the bull market. Since the low of the previous bear market we have seen two intermediate reactions. In a typical bull market, there are two intermediate reactions and the third intermediate reaction is the start of a bear market.
Macro Picture
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Consumer Confidence is rising is above the 3 and 6-month simple moving averages.
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Unemployment claims has been in a range the past few weeks. Notwithstanding, claims are above the flattening 3 and 6-week simple moving averages; that could mean that claims could rise in the weeks to come.
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ISM Non-manufacturing PMI is below the rising 3-month simple moving average. The decline below the 3-month simple moving average could be a warning of a slow down to come in the pace of growth in non-manufacturing.
The Big Three
CBS, Comcast and Scripps are solid investments. The current valuations may be getting to a point were distribution would be favored. However, should valuations decline significantly, on a macro event, we think all three of these brands should be bought on solid earnings growth, good margins, liquidity and solvency.
