CBS boss Les Moonves continues to earn his keep over at CBS, where share prices are down 20% over the last year. Goldman Sachs reiterated its “sell” rating today, raising concerns over continued fallout from the WGA strike as well as the effects of the ad recession:
We believe CBS encountered a worsening of both macro and audience trends during the quarter as (1) key local advertising categories such as autos pulled back spending, hurting radio and TV stations, and (2) the writers’ strike exacerbated below-peer ratings trends at the network and stations. We do not expect local ad trends ex-political to improve during 2Q2008 and read its continued deterioration as an early sign that pressure on the national ad market should soon follow. NBC Universal reported that its local ad revenue declined 11% yoy during 1Q2008. CBS audience trends have improved post the strike, but we do not expect a change in the longer term decline driven by ageing CBS shows.
We reiterate our Sell rating on CBS shares with limited appreciation potential to our $22.50 price target. Our estimates continue to factor in a recession, with national advertising revenue deteriorating beginning in 2Q2008 and over the remainder of 2008. We believe the recession should only exacerbate the secular concerns regarding traditional media businesses, leading to downward Street estimate revisions and pressuring CBS shares. Given CBS’s 70%+ exposure to traditional advertising, we still view CBS as the most unfavorably positioned company in our coverage universe to weather a slowing economy. Our 2008-2011E EBITDA CAGR for CBS is 2% vs. 6%-7% for peers.
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