Properly valuing a company is hard work, and recent moves in CBS Corp. (CBS) show this to be truer than ever. CBS reported what I believed to be a less-than-stellar quarterly report. True, results did come in ahead of estimates, which lead firms such as RBC, FBR, and Needham to reiterate their price targets and stock ratings (RBC did lower its price target to $75 from $78). FBR currently rates the shares a Buy with a $86 price target and Needham has a $80 price target. Shares of CBS were trading around $64.75 on May 5. 

Shares of CBS appear cheap trading at a forward P/E of around 13.

CBS PE Ratio (Forward) Chart

However, when you start pushing the price to say $86, the 2018 PE multiple rises to nearly 17, based on analyst estimates of $5.07. CBS is expected to grow its EPS by 16.5 percent from 2017 to 2018. At $86, that would give the company a peg ratio right around 1. 

Is it worth paying that sort of multiple for CBS? It depends on how you value it. When analyzing CBS's quarterly reported, one finds adjustments to earnings from continued and discontinued operations. For example, in the latest quarterly release, CBS reports adjusted net earnings of $441 million, which comes to $1.06 per share. However, when the company cited its earnings result, they showed the diluted EPS from continuing operations of $1.09 and adjusted diluted EPS from continuing operations of $1.04. 

When they reported first quarter 2016 results, they reported adjusted net earnings of $474 million or $1.02 per share and net earnings of $473 million or $1.02 share. In 2017 CBS had discontinued operations with adjustments that come to net earnings of $441 million.

Why do we care? We want to know what actually happened, did the company make money or not? The company noted in its press release that net earnings from continuing operations were $454 million, up from $442 million in the first quarter of 2016. However, total net earnings were a net loss of $252 million. Then the company noted adjusted diluted EPS from continuing operations were $1.04, an improvement from $0.95 from last year, because of share repurchases. However, the fine detail shows that adjusted net earnings from continuing operation in 2016 were $443 million, which is more than the $432 million the $1.04 reported is derived. So which is it? Did the company make more money in 2017 or not? Well, both yes and no.

See images taken from CBS first quarter 2017 press release. 

I get it, companies have special charges, asset sales, and acquisitions; but in this case, CBS has not increased its revenue in years! Forget about adjusted net earnings. The growth in CBS's earnings per share comes from buying shares back, not because the company is growing. 

CBS's advertising revenue fell from $2.09 billion to $1.60 billion, a decline of $482 million. Meanwhile, its content licensing and distribution went up to $845 million from $729 million, and affiliate and subscription fees increased to $842 million and $722 million. In the meantime, overall revenue still fell to $3.35 billion from $3.59 billion. Adjusted net income didn't increase; it was also down. So which of these results warrant paying a multiple of 17 times? Everything is going in a negative direction. 

CBS Chart

CBS data by YCharts

Meanwhile, analysts revenue estimates just continue to fall.

CBS Revenue Estimates for 2 Fiscal Years Ahead Chart

It could just be the way I think; I look for companies that are growing EPS because their revenue is increasing, not because their float is shrinking. You pay a multiple of earnings for growth; how much of a multiple you pay should be based on how much growth the company is delivering. In this case, there is no growth. In the meantime, analysts' EPS estimates just keep rising. 

CBS EPS Estimates for Next Fiscal Year Chart

While cash is dwindling, total current assets are stagnant, and long-term debt is increasing. Those shares outstanding just keep falling.

CBS Average Diluted Shares Outstanding (Quarterly) Chart

I see a company where revenue is shrinking and adjusted net earnings from continuing operations are falling. To some, it was a solid quarter. Makes tons of sense doesn't it?