Why Key Analyst Sees Value in This Media Giant

In a weekly research report, Jefferies looks for stocks it considers to be compelling values at current levels. These picks make sense for growth investors looking to stay long the markets, but wanting to rotate out of high beta or momentum companies. And twice in the past month Jefferies has picked CBS Corp. (NYSE: CBS) as a value stock to buy now.

It has not been a particularly good year for some of the country’s biggest media firms. Only a couple of them have managed to eke out a share price gain, while most have experienced a sharp drop in their share prices.

What’s happening is that the cable and satellite providers are losing subscribers, which means that they are likely to be unwilling to renew their contracts with the media companies at the rates they have been and are now paying.

While it too has taken a beating this year but has bounced off the lows, CBS may be in the best position of all the broadcast networks. With an outstanding prime time lineup, solid sports franchises like the NFL, March Madness College Basketball, The Masters and other top programming, the venerable network could once again be an outstanding stock for shareholders.

The company is leading again in the fall ratings, and it is poised to continue the network’s programming dominance in 2016. The broadcasting giant is now in the midst of a significant stock repurchase process, and many on Wall Street expect CBS to shrink its share base by 25% over the next two years.

Jefferies points out that network advertising and strong content licensing revenue drove the upside in the third-quarter earnings, which beat consensus estimates despite a slight revenue miss. Similar to the broadcasting giant’s rivals, many analysts expect CBS to look to book content licensing more evenly over the year and into 2016. And trading at around 12 times 2016 estimated earnings, the stock is cheap.

CBS shareholders receive a 1.25% dividend. The Jefferies price target for the stock is $62. Shares closed Wednesday at $50.31 and were up fractionally in Thursday morning trading.

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