What an NFL Deal Means For CBS

NEW YORK (TheStreet) -- CBS (CBS) announced Wednesday it had won the right to broadcast 16 NFL games for the 2014 season, with an option for an additional year at the football organization's discretion. This is welcome news for those who tire of incessant Big Bang Theory reruns, but is it also good news for investors?

CBS says yes.

"CBS is a premium content company and the NFL represents the best premium content there is. I look forward to all this new deal will do for us not only on Thursday nights, but across our entire schedule," said CBS CEO Leslie Moonves in a statement.

Though CBS is already the highest-rated network on Thursday evenings, sports programming with broad domestic appeal could spark a halo effect, drawing a larger pool of viewers to existing programs.

Bernstein Research, though, isn't as certain.

"CBS is already #1 on Thursday nights. This deal hampers their ability to launch and maintain their entertainment lineup, which in turn puts their syndication pipeline at risk," wrote analyst Todd Juenger.

The transaction cost between $250 million to $300 million, according to sources speaking with The Hollywood Reporter, and even for that chunk of change, it's not a deal of exclusivity. CBS will simulcast the first eight Thursday night games, while they are being shown on NFL Network. Then, CBS will produce the next eight games (six on Thursdays, two on Saturdays) to be jointly broadcast on both networks.

So what's the upside thinking behind CBS' latest deal? To Bernstein Research, it was a defensive move.

"They must be concerned with trying to keep these games from ending up on a competitive network, which they feared would significantly damage their Thursday night audiences and ad revenue," wrote Juenger. "We believe they factored in a sizable opportunity cost for what would happen if they didn't do the deal."

According to The Hollywood Reporter, competitors ABC, Fox and NBC were also involved in the bidding war.

The investment firm reiterates CBS as "market perform" with a target price of $60.

By market close, shares had added 1.9% to $58.94.

TheStreet Ratings team rates CBS CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate CBS CORP (CBS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CBS's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenues rose by 11.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CBS CORP has improved earnings per share by 28.8% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CBS CORP increased its bottom line by earning $2.48 versus $1.90 in the prior year. This year, the market expects an improvement in earnings ($3.01 versus $2.48).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Media industry average. The net income increased by 26.3% when compared to the same quarter one year prior, rising from $391.00 million to $494.00 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Media industry and the overall market, CBS CORP's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
  • Net operating cash flow has increased to $269.00 million or 21.17% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -6.65%.

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