Ad Trend Hits CBS Forecast

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Miller Tabak media analyst David Joyce lowered his estimates on CBS last week, mainly because of the worsening advertising market.

Joyce cut his revenue and cash-flow estimates for CBS due to a further pullback in ad spending by certain key advertising categories — advertising is trending down 45% year-over-year and financials are down 35%. Joyce wrote in a report that could drive a fourth quarter 2008 core advertising industry revenue decline of 25% in the local spot market and a 22% dip in the first quarter of this year.

As a result, Joyce cut his fourth-quarter 2008 revenue estimate for the Television division to $2.19 billion from $2.25 billion, reflecting a 15% decline in ad revenue versus his previous estimate of an 11% decline. Joyce also reduced his quarterly cash-flow estimate for the TV unit to $340 million from his previous mark of $450 million. Joyce modestly reduced his 1Q '09 revenue estimate for the unit to $2.241 billion from $2.286 billion.

Despite those declines, Joyce maintained his “buy” rating on the stock, but reduced his short-term (six to nine month) price target from $15 per share to $11 per share. On Jan. 22, CBS closed at $6.44.

Joyce maintained his “buy” rating on the stock, largely because of the sustainability of its $1.08 per share annual dividend, he cautioned that reaching the $11 target “may take another quarterly dividend payment and earnings report … to get there.”