As sports fans are by now aware, Tiger Woods announced this morning that he will make his return to golf at The Masters in Augusta, Georgia.  This has been the topic of much speculation in the sports world as well as the media in general, and the event is sure to provide a huge boost to television ratings for both networks covering the event.  Sports fans and casual observers will be tuned in to get a glimpse of the megastar after he reclusively dealt with significant personal issues of infidelity that have largely kept him out of the public eye but he remained the topic of much conversation.

With so many people interested in the next chapter of the Tiger Woods story, this year’s Master’s is sure to be a ratings blockbuster.  The tournament, which will take place April 8th through the 11th, is traditionally one of the highest rated events of the year for CBS, sporting or otherwise.  However, it has been estimated that when Tiger Woods is not in field ratings drop by about half.  This tournament seems to have all the elements needed to attract eyeballs and bring advertisers in droves; human drama, emotion, scandal, celebrity, the potential of redemption, and oh by the way sport.

Taking a look at the behavior of CBS Corporation stock (CBS) shows the market is caught up in Tiger Woods saga.  This morning CBS stock was trading lower and lagging the performance of the broad market indexes.  Even though there was speculation that Tiger would make his return at The Masters the stock spiked up as he confirmed the rumors this morning.  Throughout the day, the stock continued to climb, easily outpacing the market by a wide margin and finished 2.35% higher.  While that may not seem like a huge bump, consider that with little other news to speak of on the day the market cap of CBS advanced $312 million.  Perhaps most interesting is the fact that most of the sponsorship and advertising deals have been inked for months, so how much extra they can squeeze out of the event remains to be seen.

Bearing in mind that CBS has the rights to weekend coverage of the tournament, would the stock take a hit if he somehow misses the cut?  Probably not, as the phone lines at CBS are probably heating up right now with advertisers looking to more prominently feature their ads or work a special partnership deal during what could turn out to be the biggest ratings grab in golf broadcast history.  Furthermore, this should increase demand for marketing deals still yet to be signed for future tournaments that will hope to feature Tiger.  For what its worth, we have an Overvalued rating on CBS as of this week’s report.  However, it is clear that today’s move had very little to do with valuation.

Shares of Weight Watchers International (WTW) are trading down more than 13% just after the open on Friday morning because the company’s outlook for the year ahead disappointed Wall Street.  The weight-management program known for point counting has endured a relatively difficult year and blames much of the difficult on a weak economy.  Management expects 2010 to be challenging as well and has placed EPS guidance at $2.25 to $2.50, substantially below the consensus earnings expectation of $2.78 per share.  Weight Watchers spoke to the need “to invest in initiatives to modernize their offering,” which may be related to a report out of Adweek that claims WTW’s $70 million advertising budget is reviewing its options.

Financial performance in the year just ended was actually fairly strong, as fiscal 2009 earnings came in at $2.68 per share and beat analysts’ expectations in each of the four quarters.  Sales did slump about 9% in the year to $1.4 billion, but management was able to limit the impact on the bottom line to just 3.3% compared to fiscal 2008 through savvy cost cutting. 

Weight Watchers’ results are closely tied to consumer sentiment, and many people cannot justify spending on weight loss when money is extremely tight.  If you believe the consumer is due to rebound in 2010, then Weight Watchers would be a major beneficiary and could easily exceed the conservative guidance.  At Ockham, we currently have a Greatly Undervalued rating on WTW as their valuation is quite attractive, and it has only become more attractive following the share’s collapse this morning.  For example, historically WTW has traded for price-to-cash earnings multiples in the range of 16.2x- 24.8x, but the current price-to-cash earnings is only 10x.  Furthermore, the current price-to-sales of 1.44x comes in well below their historically normal range of 2.75x-4.19x.

The guidance out of Weight Watchers should not be dismissed, but we think a lot of the difficulties seen in the year ahead have already been priced in.  The company has decently strong underlying value based on the current fundamentals and value investors with a longer time frame may benefit from an eventual rebound in Weight Watchers business.  In the interim the stock yields a respectable 2.7% at the current price, and we believe the downside is likely fairly limited at this point.

“Empire Google is more than doubled since the March lows, but lately over the last couple of weeks the stock seems to have hit a wall. This stock has been stalled…I say, Google, look out $600. You ain’t seen nothing yet. Pictures are worth a thousand words and $750.” — CNBC’s Mad Money 12/15/2009

Jim Cramer often does a segment called “Off the Charts” where he dissects a stock from both a fundamental and technical perspective, and on Tuesday’s show this segment featured Google (GOOG).  From a technical perspective, Cramer said that the technician he trusts claims this chart is the best in the book.  The stock is showing higher highs and lower lows, and looks to be headed higher, potentially much higher.

Looking at the fundamentals Cramer believes that the analysts are too negative on Google, as the most bullish among them has a $700 price target.  With those same analysts calling for fiscal 2010 earnings per share of $26.37, it assumes a multiple will stay just about in line with the current fiscal year at 26.5x.  For Cramer, that simply underestimates Google’s growth potential as the world’s undisputed online search advertising leader.  Although Google still dominates that industry, they are actively diversifying their business lines in recent years and are moving into uncharted territory, such as mobile phones and television advertising data (TiVO and Google Are Watching Your Remote).  With exposure to everything from search and web services to mobile Internet and browsers, Google is about as diverse a Technology company as exists today.

The latest search data from Comscore shows Google has fortified its market share lead with nearly 70% of queries, after an initial surge from Microsoft’s (MSFT) Bing.  It would be hard to deny that even with the difficulties in advertising during the recession, online advertising is a slice of the pie that is growing rapidly.  Yet, as Cramer pointed out online advertising only accounts for 12% of all advertising dollars these days.  The growing success of Cyber Monday sales following Thanksgiving through sites like Amazon (AMZN) is a sign of things to come as more and more people transact on the web.

At Ockham, we see big things for the future of Google as well, but the current valuation only receives a neutral Fairly Valued rating at present.  The company shows impressive growth (both organic and through savvy acquisitions) and ability to generate profits, but the steady march upward over the past year has made the stock less attractive to a value investor.  This is easily demonstrated through comparing Google against itself historically.  Since becoming a public company, the market has been willing to pay between 26x and 51x cash earnings per share for GOOG, and while the current level is on the low end of the range at 29x, it is still considered normal valuation in our methodology.  It is a similar situation with price-to-sales per share metrics.  The current level of 8.3x is on the low end of the historical range of 7.3x to 14.9x.

Google is currently within its historically normal valuation ranges, yet if it were able to achieve the midpoint of these ranges it would imply a price for GOOG of $790.  Google is still growing rapidly but may not be able to command the same premium from the market as it did as a less mature company.  Clearly, we are still optimistic about Google’s long term prospects just like Cramer; however, this not news to the market and there are plenty of cheaper stocks.

Google (GOOG) is in the information business and they have moved that business forward today in a deal with TiVo (TIVO) to analyze the way people are watching and not watching television.  The goal of the pact will be to show advertisers more accurate information on how many are actually watching television live or have pre-recorded and are skipping through the commercials.  The obvious market leader in search advertising, Google has recently taken a special interest other forms of advertising including mobile advertising with the acquisition of AdMob and television advertising with data licensing deals with Nielsen and now TiVo.

TiVo was the first digital video recording (DVR) technology to allow users to record live television for viewing at a later time.  The consequence of this is that recorded programs were often watched and ads were fast forwarded through.  Of course, it did not take long for advertisers to realize that often they were paying for spots to reach fewer viewers.  As DVRs were just hitting the scene early in the decade, many feared this would doom television’s most robust source of revenue, advertising.  However, that fear has proven to be at least somewhat overblown as television advertising is still vital to the industry, and the recession has taken a bigger bite out of advertising budgets than the proliferation of DVRs.

In fact, a fascinating study from researches at Boston College suggests that viewers are actually paying closer attention when fast forwarding.  Think about it, when watching a program live people often lose interest during commercial breaks and may leave the room or do something else to occupy their time.  Whereas a viewer actively fast forwarding is watching the screen with their thumb on the play button.  Thus, a brand icon flashed on the screen for only a fraction of a second can have an effect on the target audience.

Google will provide a better data set for advertisers to work with, and they will undoubtedly start to plan their advertising campaigns around the ways that most people are watching the content.  Sporting events like the Super Bowl will always be a great way to advertise in a real-time live format, as most viewers will be watching the game live.  Popular sitcoms may be fertile grounds for fast forwarding targeted advertisements because of their likely higher rate of recording.

This deal and Google’s other efforts to move into the television advertising space are an interesting move, and the data they are collecting should make the marketplace a little more efficient.  Google has made a mint out of collecting and analyzing data, and while they are not the only company doing this, they are undoubtedly the largest and most well capitalized.  Ockham’s methodology has a Fairly Valued rating on both GOOG and TIVO at their current valuations.

“CBS had interesting comments. It wasn’t a great report if you just look at the earnings revenues were down. Moonvez said the worst is behind us and thought advertisers were slowly returning.” — CNBC’s Squawk on the Street 8/7/2009

CBS Corp. (CBS) has been dealing with the slowdown in ad sales since before the recession started, but after the company reported a slightly better second quarter than was anticipated things are starting to look up.  Shares have surged ahead as much as 31% today, as Wall Street analysts from Morgan Stanley (MS), JP Morgan (JPM), Jefferies (JEF) and S&P have all boosted their price targets on the stock.  Excluding one-time items CBS was able to make about 8 cents per share versus expectations of seven cents, and revenue declined about 11%.

Profits have slipped hugely from the period a year ago, but far more important were the company’s comments on encouraging signs in the advertising industry.  “The back half of the year will be considerably stronger than the first,” CBS’s CEO Les Moonves said on a conference call, he is seeing “early signs of a recovery.”  This is a good sign for all companies tied to ads but perhaps CBS more than any others.  CBS derives 65 of revenue from advertising and does not have the expansive family of cable television networks to fall back on as does Time Warner (TWX) or its former parent company, Viacom (VIA).  Having a stable revenue stream of subscription fees helps to insulate competitors, while CBS is ultimately more tied to the ad market.  CBS also did a good job of driving ratings up, as the only major network to gain prime-time viewers, which should help endear it to advertisers.

We are reiterating our Fairly Valued or neutral stance on CBS shares after today’s meteoric rise.  There is no doubt that these results are more upbeat than anything the company has said recently, but there has been too much destruction to earnings to ignore, as ad sales have been so weak.  With CBS now approaching $11 per share, we will be reviewing this stock for a possible downgrade going into next week.  We recommended buying shares when they were down in the low single digits, but it has now tripled off of the lows.  To buy in off of this huge day would be more of a speculation than a long term investment, in our view.  Shareholders should be pleased with the progression of the company, and the fact that the better economy is lifting ad rates from extremely low levels.  However, the price is no longer attractive to us even with improved operating conditions.  By our methodology, a price of somewhere around $7 to $9 would be a more reasonable entry point.