Why is this a good thing? REITs trade at a higher multiple than media stocks to because they return 90 percent of profits to shareholders as dividends. CBS is looking to create a situation where the pieces are worth more than the whole, while creating tax benefits.
What's the strategy? Last year CEO Les Moonves talked about his interest in spinning off non-core assets. Its outdoor business is the natural first one to go since it has the least amount in common with CBS' core TV content business. And rather than selling the US outdoor business—where the real value is—the move to put it in a REIT allows shareholders to continue to cash in on those dividends.
Morgan Stanley's Ben Swinburne said the value of CBS' outdoor business has not historically been fully reflected within the company's valuation. He said it has the potential to raise as much as $6 billion, pre-taxes, which could drive about "13 percent EPS accretion in 2014."
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Davenport & Company's Michael Morris raised his price target on CBS from $42 to $45 on the news. He praised CBS for "utilizing a more tax efficient structure" and realizing "under-appreciated intrinsic value in the existing outdoor assets." Now Morris values the outdoor business at a total of $6.57 billion in enterprise value.
Evercore's Alan Gould, who reiterated his overweight rating on the stock, said that while the news isn't a surprise, it hadn't been factored into the stock price. Looking forward to the next potential catalyst, Gould expects more digital distribution deals. In particular, he's predicting CBS will strike a licensing agreement with Amazon, which he projected "could be worth at least $300 to $400 million."
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Barclays' Anthony DiClemente asked whether CBS will structure the spin off so it's actually a "split," allowing CBS to retire up to $4.8 billion in stock, which he says would be accretive to 2014 earnings per share by more than 15 percent.
We should expect Moonves to look at other opportunities to spin off and make money from non-core assets. CBS' publishing business, Simon & Schuster is a natural next place to look, especially as News Corp. hunts for more publishing assets.
—By CNBC's Julia Boorstin; Follow her on Twitter: @JBoorstin