The Zacks Analyst Blog Highlights: CBS, News Corporation, Comcast, SLM and Nelnet

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May 01, 2012, 09:30 ET

CHICAGO, May 1, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include CBS Corporation (NYSE: CBS), News Corporation (Nasdaq: NWSA), Comcast Corporation (Nasdaq: CMCSA), SLM Corp. (Nasdaq: SLM) and Nelnet Inc. (NYSE: NNI).

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Here are highlights from Monday's Analyst Blog:

Earnings Preview: CBS Corporation

CBS Corporation (NYSE: CBS) is slated to report its first-quarter 2012 financial results on Tuesday, May 1. The current Zacks Consensus Estimate for the quarter stands at 43 cents per share, indicating an estimated increase of 48.3% from the prior-year quarter. Revenue, as per the Zacks Consensus Estimate, is $3,775 million.

Fourth-Quarter 2011, a Synopsis

CBS Corporation's quarterly earnings of 57 cents a share surpassed the Zacks Consensus Estimate of 53 cents, surging 23.9% from 46 cents earned in the year-ago quarter.

However, revenue inched down 3.1% year over year to $3.78 billion, which was a healthy number as the quarter lacked significant political advertising revenues compared with the prior-year quarter. Moreover, the prior-year quarter's revenue included the second-cycle syndication sale of CSI: Crime Scene Investigation.

Estimate Revisions Trend

Agreement

A positive sentiment is evident among the analysts for the upcoming quarter. Among the 21 analysts providing estimates for the quarter, four revised their estimates upward while none moved in the opposite direction in the last 30 days. For fiscal 2012, five analysts revised the estimates in the upward direction while none lowered the same.

Magnitude

The Zacks Consensus Estimate for the first quarter remained stable over the last 30 days. Most of the analysts remained constructive on the stock based on the company's growth prospects. The Zacks Consensus Estimate inched up a penny to $2.36 for fiscal 2012 as the analysts expect healthy political TV advertising revenues, which in turn, is anticipated to boost profitability.

According to the company's Chief Executive Officer Les Moonves, profits are forecast to rise by $180 million, primarily due to political ads, and surpass the profits of the last presidential election year.

Positive Surprise History

With respect to earnings surprises, CBS Corporation has topped the Zacks Consensus Estimate over the last four quarters in the range of 7.6% to 52.6%. The average remained at 24.4%, indicating that the company has outperformed the Zacks Consensus Estimate by that same measure in the trailing four quarters.

Our Take

CBS remains well positioned to drive revenue in the coming quarters through its strategic initiatives and operating efficiencies. Management remains optimistic and expects the growth momentum to continue in fiscal 2012 based on strong political advertising, reverse compensation from affiliates, strong demand of its content and streaming and retransmission consent.

Moreover, CBS is likely to benefit from an increase in political ad spending as it owns more TV stations than its competitors News Corporation's (Nasdaq: NWSA) Fox and Comcast Corporation's (Nasdaq: CMCSA) NBC.

Recently, the company through one of its divisions, CBS Interactive, has entered into a partnership with TwitchTV, a leading video game broadcasting network and Major League Gaming (MLG), the world's most renowned eSports league. The company's expansion into the fastest growing live gaming and eSports market is likely to enhance its profitability.

We believe that CBS Corporation's long-term agreements with the NFL, the NCAA, the SEC and the Grammys will generate stream of positive cash flows for the company in the long run.

Currently, we have a long-term 'Outperform' rating on the stock. Moreover, CBS Corp. holds a Zacks #1 Rank, which translates into a short-term 'Strong Buy' rating.

Sallie Mae Downgraded to Neutral

We are downgrading our recommendation on SLM Corp. (Nasdaq: SLM), better known as Sallie Mae, to Neutral from Outperform based on a tepid economic recovery and the impact of the legislative changes on its business.

First Quarter Results

Aided by a fall in loan loss provisions and decrease in expenses, Sallie Mae's first-quarter 2012 core earnings came in at $284 million or 55 cents per share, beating the Zacks Consensus Estimate of 52 cents. Results also compared favorably with the prior-year quarter's core earnings of $260 million or 48 cents per share. However, the company experienced a decline in net interest income and reductions in debt repurchase gains.

On a GAAP basis, Sallie Mae's first-quarter 2012 net income came in at $112 million or 21 cents per share, down from $175 million or 32 cents reported in the comparable quarter last year. Notably, in the reported quarter, Sallie Mae experienced a $131 million increase in unrealized "mark-to-market" losses on derivative contracts compared with the year-ago period.

Sallie Mae has reiterated its guidance for 2012. For the full year, management expects to generate core earnings of $2.00 per share and anticipates private education loan originations of $3.2 billion.

Our Take

Sallie Mae has a leading position in the student lending market. However, in order to comply with the legislation, the company along with other student lenders such as Nelnet Inc. (NYSE: NNI) has stopped originating new federal student loans. To respond to such changes, the company is making efforts to diversify its business.

Though such efforts are encouraging, we believe it would take some more time for the company to reap the benefits of a transition to its business model. Moreover, going forward, we believe that with the run-off of its FFELP loan portfolio, its interest income would be under pressure.

However, dividend hikes and increases in share buyback authorization give a boost to investors' confidence. And despite challenges, we anticipate that the company's cost containment efforts would help it navigate through the current cycle.

Though the legislative actions challenged the company's business model, we expect Sallie Mae to benefit from the Department of Education's servicing contract, under which it would service and collect government guaranteed loans. Given its low-cost business structure, we believe this new role will support Sallie Mae's profitability and help produce an acceptable risk-adjusted return.

As such, the risk reward profile of Sallie Mae seems balanced and hence, we have a Neutral recommendation on the stock.

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