Shares of New York-based CBS, the most-watched of the four major networks, have fallen 30% over the past three months, bringing down its valuation to attractive levels, according to some Wall Street analysts. CBS is trading at 10.9 times earnings, its lowest level since at least February 2014.
As the broad market sold off again on Tuesday, CBS fell 1.5% to $43.41.
Loaded with big name shows such as NCIS, Scorpion, The Good Wife, The Big Bang Theory and the September debut of The Late Show with Stephen Colbert, CBS is a company loaded with popular mass-market programming. Throw in big sports contracts led by NFL's Thursday Night Football and the streaming premium channel Showtime, and CBS would seem to be well positioned for sustained growth.
Yet CBS, like most media companies that rely on television advertising has been buffeted by marketers moving more of their money to digital platform as viewers increasingly subscribe to ad-free streaming services led by Netflix (NFLX) .
"They have more advertising exposure than some of the other players," including Time Warner, said James C. Goss, managing director and senior research analyst at Chicago-based Barrington Research Associates.
But the notion that CBS is oversold is not without its followers. According to a recent Credit Suisse report, CBS is well positioned even as viewers embrace so-called "skinny bundles" that offer a smaller basket of channels at a price well below the traditional 150-plus bundle. Credit Suisse has a 12-month price target on CBS of $75 per share, based in part on the forecast that U.S. TV advertising will grow even as digital advertising revenue rises in tandem.
"Between the network and the radio and TV groups, CBS has about half of its revenue base ad driven," said Goss. "They will get political advertising as well with the election next year. Also, say you have a slim TV package, and a dozen channels, what are the odds that CBS would be one of those? That's going to be a sure thing."
Retransmission revenues, the money local CBS affiliates pay the network to carry its signal, coupled with similar carriage agreements from pay-TV operators, in addition to paid subscription services CBS All Access and Showtime's recently launched standalone offering have also gained in importance to boost CBS.
"CBS benefits twice, because its owned-and-operated stations will generate those retransmission revenues," said Goss.
CBS also owns and produces an increasing share of its primetime content, about 70 to 80%, he added, including investigative crime dramas NCIS and CSI.
Owning shows means being able to sell syndication rights, including to cable networks, bringing in more revenue.
"They've been great at creating these scripted procedural dramas you don't have to watch in sequence, which is great for video-on-demand," said Goss. "As you have a Hulu or Amazon Prime opportunity, CBS can develop deals for them. There are a lot of levers they can pull, from advertising to retransmission."
Despite Thursday Night Football being costly to put on, said Goss, it also has great value, and will draw more viewers to the network, though it may need to pick up over time.
While David Letterman's production company Worldwide Pants Inc. co-produced and owned late-night CBS heavyweight Late Show with David Letterman for its decades-long run, CBS has taken over as owner and producer of successor The Late Show with Stephen Colbert, highly touted because of its smart, snarky host and set to premiere Sept. 8, and The Late Late Show with James Corden.
"CBS loses David Letterman and the value he brought to the table, but will own The Late Show and The Late Late Show," said Goss. "They have two hosts who are proficient at creating YouTube moments. You can have publicity that increases viewership. If you get the viewership, and people record the shows and watch them the next day, that counts towards advertising. Having ownership of both shows means more profitability."