A widespread belief that an economic recovery is underway has sent entertainment stocks higher this week with CBS Corp. being the biggest beneficiary. CBS was up 2% or 21 cents, to $10.57 at 12.30 p.m. on Aug. 20. Over the last 52 weeks it has traded as low as $3.06 and as high as $17.27. Disney was also up 1.5% to $25.85 and Viacom was up 0.8% to $25.46. After gaining 1.8% yesterday, Time Warner was flat at 0.2% to $27.25.
UBS media analyst Mike Morris raised earnings estimates for CBS in 2010 and 2011 and said in a note to investors on Wednesday ,“We continue to view CBS as the most attractive cyclical investment in media,” he wrote. “We believe that the consensus 2010 outlook for media underestimates the importance of advertising in driving consumer spending growth. If the current 2010 consumer and corporate spending estimates are reached, ad revenue should be well above the consensus forecast.”
Morris wrote that he believes advertiser demand for broadcast inventory will rise over the coming quarters, a bonus for CBS which is the only broadcast network to grow viewership. CBS’s average C3 rating rose 6% season-to-season averaging 3.5 versus 3.2 in total viewers, according to analysis of Nielsen data, by ad agency RPA. Morris also had positive things to say on Walt Disney Co. and Time Warner.
Separately, Bernstein Research senior analyst Michael Nathanson said CBS is not expected to continue trading at 14 times earnings, a much higher multiple than its media conglomerate peers. The company’s best case scenario is for CBS stock to rise to $12.50 or 20% higher than current levels, he said, adding in a note issued Aug. 20, “If indeed CBS runs near to that level, we would use the enthusiasm as an exit strategy.”