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Broadcast stocks: How low is low?

If you own radio or TV stocks, you know that they've fallen this year - - a lot. Most pure-play radio companies have lost at least a quarter of their value, many more than a third. TV stocks haven't done quite that badly, but are down double digits. You might expect Wall Street analysts to be telling clients that the stocks are now bargains to snap up, but quite the opposite is the actual case - - the analysts say the bad news is only going to get worse.

Three analysts who cut their broadcasting outlooks last week were just the latest from Wall Street to warn that radio (in particular) and television have not fully bounced back from the advertising recession.

Saying that once favorable September pacings had softened, Lehman Brothers analyst Bill Meyers slashed his estimate of 2004 radio revenue growth to 2.7%. He'd previously forecast 3.7% and just a few weeks ago said 5%. Having failed to capitalize on robust consumer spending, political advertising and easy comps in 2004, Meyers said 2005 was unlikely to bring an improvement. First, the industry will not benefit from political spending (as it did in 2004). Second, growth of consumer spending is expected to moderate in 2005. Third, inflation is expected to moderate in 2005. Under this scenario, the arguable presence of 'easy comps' is simply not enough to propel growth," Meyers said. For 2005, he cut his growth estimate to 2% from his previous 4.5%.

Banc of America Securities analyst Jonathan Jacoby is also gloomy about radio's prospects in 2005 and cut his forecast to 3.9% from 4.2% - - still considerably more optimistic than Meyers. And that was after Jacoby lowered his TV outlook for the rest of this year. Even with big boosts from political spending, the BofA analyst expects Q3 growth to be only 12%, not 13.6%, and Q4 15.1%, not 16.9%. And looking to the next federal election cycle in 2006, he expects an acceleration of a trend that began this year - - local cable getting a bigger share of political spending as campaigns become more and more focused with their spending.

RBC Capital Markets analyst David Bank had earlier taken note of that cable trend, suggesting that when faced with tight broadcast TV inventories, political campaigns are buying local cable this year, not radio, depriving radio of an expected bounce. After surveying his cources and finding "continuing lackluster radio performance," Bank cut his projection for Q3 radio growth from 2-3% to "flat-to-low-single-digit" growth. "Our Q4 5% Radio Industry revenue growth estimate could be at risk given early indications of October, but with political advertising potential and a -4% year-over-year November comp, it's still early - - National pacings appear surprisingly anemic (some sources have indicated them in the negative-single-digits) for October. We find this surprising given the expected impact of political spending on the overall advertising landscape," the RBC analyst told clients.

Such forecasts are anything but a "buy" signal for investors, so the question now is - - where will we find the bottom for broadcasting stocks? The recent low point for most of them was last Wednesday, when RBR's Radio Index hit a new low for 2004 and most TV stocks hit their recent lows following the latest negative comments from Wall Street analysts. Here's a look at just how badly broadcasting stocks have done this year.

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