CBS Holds Hidden Value

Includes: CBS, VIA
by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

THE TRADER: CBS Holds Hidden Value by Michael Santoli

Highlighted companies: CBS Corp. (NYSE:CBS), Viacom Inc. (NYSE:VIA)
Summary: Since early April, CBS (CBS) share prices are up 14% - a market cap. increase of $2.8 billion. Within its sector, it remains a cheap stock that investors are prone to hold for the long-haul. Since its Jan. 3 split with Viacom (VIA), CBS shares are up 8%, while Viacom is down 10% - despite Wall Street's preference of the latter. One reason is that CBS has one of the most undervalued cash-flow streams from radio, TV and billboard advertising available. Aside from network and production assets, the company owns 179 radio stations, 39 TV stations, a major outdoor-advertising division, Showtime, and publisher Simon & Schuster. CBS trades for less than nine-times its enterprise value; comparable companies routinely fetch substantially higher multiples. CBS has been divesting radio stations, and recently sold 15 of them for 14 times trailing Ebitda (Earnings Before Interest, Taxes, Depreciation and Amortization). Credit Suisse analyst William Drewry says he expects CBS will continue to sell radio stations, perhaps another 25. He figures the company will return the cash to shareholders via a buyback. A value for CBS in the low- to mid-30s doesn't seem all that challenging. With its 2.3% dividend yield, the possible return gets that much more interesting.
Quick comment: In its 2Q Earnings Conference Call (see transcript), CEO Leslie Moonves conceded that radio has been the weak link in CBS's otherwise strong core operations. Looking at a 1-yr chart, CBS shares have been rising consistently since mid-October 2005.

CBS 1-yr Daily Chart