A Tough Day On Wall Street For Radio
July 11, 2008 at 1:47 PM (PT)
During the day, CITADEL had a slight recovery, trading as high as .93, from the hit it took yesterday (7/10) dropping below $1 to close at .87, a new low. Today that low was tested as CITADEL closed at .83 (off 4.6%) making it another tough one. Adding to that, CITIGROUP's TONY WIBLE issued the following advisory: "Economic Storm Still Clouds Future - Cutting Estimates; Downgrade CXR and ETM to Sell." What's surprising is that PPM is now a factor in WIBLE's concerns for the industry, as noted in his advisory:
* Downgrading Radio Industry -- Radio stocks face increased near-term downside risk from downward estimate revisions and valuation compression as a weaker economic backdrop, higher lending rates, and a weaker credit market weigh on the names and exacerbate secular issues. We are lowering our target industry multiple from 8x to 7-7.5x and expect revenues to decline around 5% in 2008.
* Fundamental Issues Abound -- Radio ad spending has underperformed in 2008 YTD and recent data points suggest this will continue into 2008. Top line weakness will likely be compounded by high operational and financial leverage that will likely increase as LIBOR rates move higher.
* Valuation Compression -- Valuations still look high on a relative and absolute basis. On an absolute basis, the radio universe still trades 8.5x '09, which is high when compared to comparable other EMT
* Downgrade CXR and ETM to Sell -- We are cutting estimates on all our radio names and lowering our target prices on CXR to $8.50 from $12.50 and ETM to $5 from $9.75 on the fundamental and financial issues facing the industry. We maintain our Sell ratings on CDL with our target price going to $0.50 from $0.75.
* Keep EVC at Hold -- While EVC has more hedges on its debt and we still find EVC's LT opportunities compelling, we maintain our Hold rating on: 1) PPM uncertainty; 2) the ongoing Televisa issue; and 3) high Auto exposure.
ARBITRON has been contacted for comment.
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