(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of CBS Corp. (CBS ) have struggled in 2018, falling by 5% and underperforming the S&P 500's rise of more than 7%. But analyst's see the stock rising by more than 18% from its price of $56.06 on September 7.
Options traders are also bullish on the stock, and see shares rising even higher, by more than 30%. This isn't the first time traders have bet shares would rise. In mid-August, options traders were betting shares would rise 9% when the stock was trading below $53. The stock tumbled in early August when allegations of sexual harassment surfaced against the then CEO Leslie Moonves. Rumors of the CEO departure surfaced the week of September 3, followed by the CEO's resignation on September 9.(See: CBS Seen Rising 9% Despite Cloud Over CEO Moonves)
Bullish Analysts Targets
Analysts see shares of CBS rising to an average price target of almost $66.25, 18% higher than the stock's price on September 7, though that price target has fallen from roughly $70.75 in January. Analysts see earnings growing by more than 25% in 2018 to $5.25 and almost 12% in 2019 to $5.86. Those estimates have increased since January when analysts were looking for earnings of $5.02 and $5.72 respectively.
Because of the strong earnings growth, shares are trading at a one-year forward price-to-earnings ratio of 9.6. That is at the lower end of the historical range of 8 to 14. At its current valuation, the stock is also one of the most expensive among its peers, trailing only Disney's PE of 14.8.
The $75 call options for March saw a big spiked in open interest, climbing to more than 10,000 contracts. It is now the third largest open options position for CBS, behind 10,800 $55 November calls, and 14,300 $50 November puts. For the March calls to earn a profit the stock would need to climb to a price of almost $75.50. That is approximately 34% higher than stock's closing price on September. 7.
Technical Breakout Nears
The technical chart is also sending a bullish message. If the stock rises above the current downtrend, it could climb to around $62, the next level of technical resistance. The stock has also been rising more recently on increasing levels of volume, suggesting more buyers are moving into the stock.
For now, the options, technicals, and analysts are all suggesting shares of CBS rise over the coming months. But for that to happen the company will need to deliver. That means CBS will not only have to beat current earnings estimates but provide robust forward-looking guidance.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.