Hulu Should Help CBS's Chances Of Being Added To DirecTV Now

Hulu has confirmed that CBS Corporation (NYSE: CBS) would be included in its new streaming service, expected to be launched in the next few months.

Brean Capital’s Alan Gould maintains a Buy rating on CBS, with a price target of $75.

Discount Unwarranted

Gould believes that the company is “extraordinarily well positioned with two core networks, predictable affiliate fee growth from $800 million in 2015 to $2.5 billion in 2020, and only modest programming expense increases which alone should drive 11 percent compounded EPS growth.”

The analyst believes a company with an EPS growth rate in the mid-teens should trade at a premium to its peers. However, CBS is currently trading at a 15–20 percent discount.

“We continue to believe increasing scale will become more important in the media industry and a wave of consolidation could raise industry multiples,” Gould stated, while adding that despite the Redstone family having voting control, CBS might still be involved in the industry consolidation.

Inclusion On Hulu

With CBS being added to Hulu’s new streaming service, Gould stated that CBS was expected to receive over $3 per subscriber per month at launch, which could potentially rise to $4 by the end of the contract term.

“While new distributors with a lower subscriber base typically pay a higher per sub fee than existing MVPD's, the $3 rate is much higher than the traditional deals, higher than we would have anticipated from Hulu and bodes well for CBS's negotiations with other distributors,” the analyst noted.

Inclusion on Hulu is expected to also help CBS be included in the DirecTV Now service, a deal that is anticipated due to CBS’ position as the “most watched television network.”