Summary
Joseph Ianniello is now the interim CEO of CBS after Les Moonves' exit, and CBS topped Street expectations on the top and bottom lines.
Entertainment revenue grew 18.5%, led by double-digit growth in advertising and content licensing and affiliate and subscription fee revenue.
Showtime now has over 26 million subscribers, with ample growth opportunity remaining domestically, with only about a fifth of US households penetrated.
Local Media is seeing the highest political spending ever, up more than 25% over the 2014 midterms cycle.
I maintain my 12-month price target of $77, implying 37.1% upside.
Quarterly Recap
CBS posted another solid quarter as revenue of $3.26 billion topped Street estimates by $10 million. Non-GAAP EPS of $1.24 also exceeded consensus by $0.02, buoyed by higher revenue. The revenue beat was augmented by Entertainment, with strong growth across advertising and content licensing, and affiliate and subscription fee revenue. Total advertising sales increased 14% y/y, driven by the Network Ten acquisition, with CBS Television Network remaining on track to generate $4 billion in network advertising, consistent with the last few years.
With CBS testing the market for a possible buyer post Les Moonves, given the value of CBS content, it would not be surprising to see offers arise, in my opinion. While overhang may linger from Moonves’ exit as Joe Ianniello steps in as Acting CEO, I believe he’s more than capable of steering the ship until a permanent replacement is found. I would not rule it out, nor view it as a negative for CBS if he were named as Moonves’ permanent replacement.
