The article was written by Jacob Saphir, a Financial Analyst at I Know First.

CBS Stock Analysis

“Mass media provides the essential link between the individual and the demands of the technological society.” Jacques Ellul

Summary:

• CBS Corporation background
• Encouraging data for upcoming 4th quarter earning
• NFL games will be available on CBS All Access
• Stock repurchase program may benefit shareholders in the future

Background:

CBS Corporation, formerly known as Columbia Broadcasting Station, is a worldwide mass media company headquartered in New York, New York.  Once holding an 80% stake in the MLB New York Yankees, the company now operates in 4 segments: Entertainment, Cable Networks, Publishing, and Local Broadcasting.  The entertainment segment earns over 60% in revenue, and 46% of the company’s net income as of 2015.  CBS Television Network; CBS Television Studios and CBS Global Distribution Group produces and broadcasts scheduled programmings and sporting events.  The Cable Networks segment operates subscription program services, including digital streaming subscription.  The Publishing segment consists of Simon & Schuster, which publishes printed, digital, and audio books.  32 of New York Times #1 bestsellers of the year 2015 were published by Simon & Schuster.  The Local Broadcasting segment consists of 117 radio stations and 30 television broadcast stations throughout the United States.  Given its operations, what factors are causing the stock price to increase during the year 2016?  CBS has continued to post positive quarterly earnings, signed an important agreement with the NFL, and stock repurchase program.

Upcoming Quarterly Earnings

Since reporting the first quarter earnings for the year 2016, CBS has met or exceeded analyst estimate for earnings per share.  In its latest quarterly earnings, CBS surpassed analysts estimation by reporting $1.05 earnings per share, compared to $0.98 earnings per share.  That is over a 7% increase.  Although revenue has been inconsistent since the first quarter report of the year, net income and operating income relative to revenue have been increasing by at least 10%.  This indicates improvement in management efficiency by retaining more in profit given its earned revenue.  Given the company’s trend and increase in management efficiency, investors will be anxious to await the 4th quarterly earnings on February 15, 2017.

Signing with the National Football League

On December 1, 2016, CBS signed a crucial deal with the NFL to share games for their digital subscribers in CBS All Access. This took place in early December and could benefit CBS in terms of increasing revenue and subscribers.  As viewers are transitioning to streaming programs, CBS is keeping up with this transition by signing this deal.  On October 2014, CBS became the first mass media company in the United States to offer over the top subscription streaming service.  With the Superbowl approaching, as teams begin the playoffs, viewership is expected to rise.  A rise in viewership could lead to more profit in adverting for the most watched sporting even in the United States.

Stock Repurchase

The company is in the midst of a $6 billion dollar stock repurchase program.  As of June 30, 2016, it has $1 billion remaining in funds to repurchase common shares.  As CBS continues to complete its stock repurchase plan, investors may see its effect in earnings per share in the long run.  Consequently, when outstanding shares decrease while net income maintains, earnings per share will increase as a result.  Companies reward shareholders either through dividends or stock repurchase.  Although shareholders will see an immediate reward through dividends, stock repurchase may reward shareholders even more in the long term.

Past I Know First Forecast Successes:

In such as the one dated on September 26, 2016, the algorithm accurately forecasted a bullish signal for CBS.  Since the forecast’s release, the stock increased by over 27% within its given 3 months time span.

In another example, the algorithm accurately forecasted a bullish signal for CBS on September 22, 2016.  The stock increased by over 12 % in its 2 weeks time span.

Below is the latest forecast I Know First algorithm released on January 4, 2017.  If we were to compare the forecast back in September 26, 2016, we can see both forecasts rate CBS, Corp. as a buy.  If the previous forecast accurately predicted the stock would increase and it did by over 27%, the latest forecast below could indicate future increase in the stock’s value.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.