CBS 'eyes' more growth

No longer boring, CBS is benefiting from asset sales, a growing digital presence and a booming billboard business. Can Les Moonves keep wowing the Street?

By Paul R. La Monica, editor at large

NEW YORK ( -- News Corp. has MySpace. Walt Disney has ESPN and its cozy relationship with Apple and iTunes. Viacom owns MTV. Time Warner is the parent of the hot celebrity site

Every major media company owns something that makes it cool. And then there's CBS. Long derided as the network for "old" people, the company hasn't been considered to be one of the more exciting media companies.

CBS CEO Leslie Moonves has been a big cheerleader for his company and its stock and investors like what Moonves is telling them.
It may not be the coolest media company but CBS is the best performing media stock so far in 2007.

But that's quickly been changing. Last November, CBS hired Quincy Smith, an investment banker at influential media mergers and acquisitions firm Allen & Co., to head up the CBS Interactive unit.

Since then, CBS (Charts, Fortune 500) has started to scoop up some digital media assets, including financial news site Wallstrip and online radio service and created a syndication network for its content that includes many of the Web's most prominent social networking sites.

During the past year and a half, CBS has also sold off so-called non-core assets in the past year, including its theme park business and radio stations in smaller markets.

Wall Street likes the new CBS. Shares are up 9 percent year-to-date, making the company behind the Eye Network the best performing major media stock. News Corp.'s (Charts, Fortune 500) shares are up 7 percent and Disney's (Charts, Fortune 500) stock is up 4 percent. Shares of Viacom (Charts, Fortune 500), which used to be the parent of CBS, are flat, while shares of Time Warner (Charts, Fortune 500), which owns, have fallen 7 percent.

CBS will report its second-quarter results on July 31. Analysts expect the company to report revenue of $3.42 billion, down slightly from a year ago since last year's numbers include revenue from sold assets. Earnings per share are expected to increase by just 4 percent.

So why has the stock done so well considering that its fundamentals are fairly tame?

David Miller, an analyst with SMH Capital, said one reason is that investors are appreciative of the fact that CBS was able to sell slow-growth assets for a healthy price. That's helped to boost profits a bit, he said.

He also thinks that CBS CEO Leslie Moonves has been extremely effective in promoting the company and its digital initiatives. He said that's a big reason why CBS has been a better investment than its former corporate parent Viacom since CBS split from Viacom in January 2006.

"We like Les Moonves a lot. He's been a very good marketer of his own stock. That's one reason why CBS has outperformed Viacom since the split. He's passionately involved in marketing the company and stock," Miller said.

Still, Frederick Moran, an analyst with Stanford Group, said there is more to CBS' strength than promotional hype. The CBS network finished in first place overall this past television station and in second with the 18-49 year-old market that advertisers covet.

And even though CBS' radio business has been experiencing difficulties due to sluggish demand for advertising, Moran said that the company has done a good job of keeping expenses down so that profitability isn't suffering.

What's more, CBS also owns a large outdoor advertising division. And the billboard business has experienced healthy levels of growth as of late.

This, analysts say, is partly due to a transition to digital signage which is helping to boost sales and also because billboards are viewed by many advertisers as one medium that doesn't face competitive pressure from the Internet and is not easily ignored the way TV and radio ads are. After all, you can't use TiVo to skip past a billboard while driving.

"Television and radio broadcast growth has looked anemic over the past year but somehow CBS has been able to hold the line on costs while squeaking out a small amount of growth," Moran said. "And CBS outdoor has shown fairly impressive results, which have also helped contribute to the overall health of the company."

Moran added that CBS has pleased shareholders by increasing its dividend several times in the past year. The company now pays a dividend that yields 2.6 percent.

But there are some risks to CBS.

One analyst who asked not to be named said that a poor outlook from local TV station owner Hearst-Argyle Television (Charts) might be a sign that the TV advertising business is weaker than thought, which would obviously not be good news for CBS.

Hearst-Argyle reported second-quarter results Thursday and warned that sales for 2007 would be lower than analysts' consensus estimates.

Miller said he thinks the stock is fairly valued right now but that it could face some tumultuous times in the coming months due to a legal fight looming between CBS chairman Sumner Redstone and his daughter Shari.

Miller also said that he's not convinced yet that CBS' digital makeover will really lead to higher growth rates for the company.

"The digital deals are very interesting academically but not yet financially. It hasn't resulted in any sort of uptick in overall ad sales growth. CBS has not yet demonstrated that digital revenue will grow the overall ad pie. The jury is still out," he said.

Analysts quoted in this story do not own shares of CBS and their companies have no investment banking relationships with the company.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan. Top of page