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Analyst: Retrans Victory Means $7 A Share to CBS

When CBS won its retransmission consent battle with Time Warner Cable, it said it sustained no financial harm during the month-long blackout. Now an analyst says that by playing hardball and getting the fees and other rights it deemed important from the cable operator, CBS has put itself on a path that makes its stock worth $7 a share more than before.

In a research note, David Bank of RBC Capital raises his target price for CBS shares to $67 a share from $60 a share, largely on the strength of retrans fees.

Based on the Time Warner Cable deal and another recent agreement signed with Verizon, he expects retrans fees to ratchet up from about 88 cents to $2.28 cents per sub per month by 2020. That will push CBS’ retrans revenue from $370 million in 2013 to $897 million in 2020. With reverse comp revenue from affiliates rising from $131 million in 2013 to $1.1 billion in 2020, distribution — before digital deals — will hit $2.04 billion in 2020, up from $501 million in 2013.

“And to answer a question we consistently get from investors … no, we don’t think the new retrans rates are in the stock,” Bank says.

Bank calls CBS his top pick among the media stocks. “CBS remains the closest thing to a large cap pure-play content story, in an environment of increasing content value,” he says.  “Many investors view CBS as a highly macro sensitive business model given the current revenue mix from advertising. We view short-term trends in advertising as very stable, given our channel checks. Longer-term, we believe Network TV advertising is surprisingly stable (the last ad medium to be cut in a slowdown and the least substitutable versus digital).