CBS Corporation (NYSE:CBS) has been a victim of the ‘cord-cutting’ concerns surrounding media stocks of late. CBS stock headed into Thursday afternoon’s earnings report at its lowest levels in more than two years.

But CBS’ first quarter results suggest the market has been far too pessimistic. CBS Corporation stock gained over 2% in after-hours trading – and there’s reason to see a lot more upside.

Both the numbers from the quarter and the commentary on the CBS earnings calls suggest that not only is CBS surviving amid cord-cutting, it’s thriving. And with dominant content and overall subscriber growth, a 8x+ forward EPS multiple seems ridiculously low.

In fact, it seems to make CBS stock the most attractive play in the entire media sector at the moment.

The CBS Q1 Results

From a headline perspective, Q1 results from CBS look like an absolute blowout. Revenue of $3.76 billion rose 12.6% year-over-year, three and a half points faster than expected. Adjusted EPS of $1.34 increased 26% – $0.15 ahead of estimates.

CBS earnings actually grew more than twice as fast as the Street expected and rose for the 33rd consecutive quarter, as CBS CEO Les Moonves pointed out in the Q1 conference call.

And the strength was relatively broad-based. The entertainment segment (which includes CBS and its Studios) saw revenue rise 16%, driven by a whopping 39% increase in affiliate and subscription fees.

Higher affiliate fees from cable operators like Comcast Corporation (NASDAQ:CMCSA) and Charter Communications Inc (NASDAQ:CHTR) combined with growth from “skinny bundles” and CBS All Access.

Cable Networks revenue grew 12% (a notable achievement in this environment) thanks largely to Showtime. Even the company’s owned local media stations eked out 1% growth, with the smaller publishing division off by the same amount.

Whether the growth necessarily is sustainable is up for debate, but Moonves seemed to argue that it was. On the call, Moonves said:

“As audiences move from place to place, they’re not leaving CBS – they’re just transitioning to a new platform that actually pays us more than the old one.”

In other words, the cord-cutting concerns that are killing media stocks actually are a benefit to CBS stock. If that truly is the case, and CBS earnings support that argument, CBS should be priced for growth going forward as well.

The Risks to CBS Stock

As good as the numbers look, there are concerns here. Retransmission revenue is a relatively new stream and as cable operators lose subscribers, CBS could see pressure on that front. Advertising revenue has held up so far, but there, too, investors are concerned that declines are on the way.

In the near-term, a clear risk is a potential merger with Viacom, Inc. (NASDAQ:VIA,VIAB). Those companies were split from each other back in 2005, but the Redstone family still controls both companies and still seems set on making a deal.

At least one major CBS shareholder isn’t happy about it, and analysts seem to agree. Indeed, I’m not particularly impressed with Viacom myself, as I wrote back in February.

A reported all-stock deal would cushion the blow somewhat, but asking CBS and Moonves to clean up the mess that Viacom has made seems like an unwise and potentially risky choice.

At this point, though, the move in CBS stock seems like an overreaction. The declines of late seem to imply that any Viacom-related risk is priced in or at least getting close.

CBS has dropped almost 30% from its 52-week high, losing about $7 billion in market capitalization in the process. Year to date the value of CBS Corporation stock has dropped almost $4 billion.

Viacom is only worth about $12 billion. At a certain point, even if a deal gets done (which isn’t guaranteed) and even if it’s a bad deal for CBS, the damage isn’t going to be what the market has priced in.

Meanwhile, CBS remains a growing company not just in terms of revenue and profits, but subscribers. That’s a rare beast in this market.

Walt Disney Co (NYSE:DIS) unit ESPN is losing subscribers. So are AMC Networks Inc (NASDAQ:AMCX) and Discovery Communications Inc. (NASDAQ:DISCA). Charter just disclosed an ugly quarter with subscriber losses much worse than expected.

CBS is leading the pack. But CBS Corporation stock certainly isn’t priced like it.

CBS Corporation Stock Looks Ridiculously Cheap

CBS stock trades at just 9.4x 2018 consensus EPS. That’s a multiple that suggests growth will end relatively soon. But coming out of Q1, that seems a tough case to make.

Indeed, at that multiple, the market seems to be arguing that a Viacom deal will go through and be disadvantageous to CBS shareholders.

It presumes advertising revenue will turn negative, and that retransmission revenue growth will come to an end abruptly. It even seems to ignore long-term benefits from licensing of shows to streaming services like Netflix, Inc. (NASDAQ:NFLX).

In short, the market is pricing CBS stock as if it gave investors ownership of a declining business. That clearly doesn’t seem to be the case. And if it isn’t, even a zero-growth 12-14x multiple suggests CBS Corporation stock should rebound to $60+, more than 20% upside.

And if Moonves is right, and CBS is benefiting from the changes in the media space, this should be the best stock in the space – and one of the best stocks in the entire market.

As of this writing, Vince Martin is long shares of AMC Networks Inc, and has no positions in any other securities mentioned.