CBS’s steady outlook for net income drives analysts to forecast positive growth of 8.63% in the coming year, but it’s critical to take a step back and think through this projection. Investors should consider the forces that are spurring this growth, as there are certain implications that can impact on shareholder return. To help investors get a top level understanding, I will try to evaluate CBS’s margin behaviour so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.See our latest analysis for CBS
What does CBS.A’s profit margin tell us?
Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. Knowing the portion of top line revenue that is turned into net income helps to assess this ability whilst spotting profit drivers, and can be found by calculating CBS.A’s profit margin.
Margin Calculation for CBS.A
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = 1.54 Billion ÷ 13.29 Billion = 11.59%
There has been an expansion in CBS’s margin over the past five years, with a positive 2.09% average growth in net income and decline in revenue growth of -1.47% on average, which means that the decrease in revenue has coincided with a larger portion falling to the bottom line as the company was able to maintain a positive earnings trajectory. The current 11.59% margin seems to continue this movement, indicating that earnings growth has likely been driven through improved cost management as opposed to revenue growth.
Understanding what could be driving CBS’s future earnings
Based on future expectations, CBS.A’s profit margin will continue to expand, with an expectation of 4.69% in annual revenue growth and 18.64% earnings growth expected annually. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. Nonetheless, those watching the stock must know a expanding margin can hold various implications on the company’s performance depending on how it operates, which makes further research very important. In many situations, looking at a company’s profit margin in relation to other similar businesses can be more informative. For CBS.A, future profit margin is expected to expand simultaneously with margins in the Media industry, whilst at the same time, CBS.A’s forecasted ROE of 63.53% exceeds that of the expected 11.90% ROE of the industry (note that this observation is also influenced by relative debt levels). This highlights that analysts are confident that the underlying earnings characteristics mentioned above will provide a higher return for shareholders in relation to the industry. But before moving forward, it must be remembered that bottom line earnings and profit margins are susceptible to being manipulated and don’t always give the full picture. Thus, it is essential to run your own analysis on CBS’s future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.
For CBS.A, I’ve put together three essential aspects you should look at:
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Valuation: What is CBS.A worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CBS.A is currently mispriced by the market.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of CBS.A? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!