Tough year ahead for Citadel

That’s the view from Wachovia analyst Marci Ryvicker, although she has raised 2008 EBITDA and free cash flow estimates because of the cost reductions from the restructuring announced last week. Ryvicker notes that Citadel’s post-merger EBITDA target for 2008 has been pushed back. “Upon closing of the ABC merger, management was forecasting a combined EBITDA figure of 400 million for 2008. Based on the poor results and persistent weak market conditions, management is now pushing this target to 2010.  We have not published our 2010 estimates but can tell you that we are still below management's goal,” the analyst told clients. The stock is not a buy, but with the price beaten down to about a buck, Ryvicker is sticking with her “Market Perform” rating on the stock.

Here is more of her thinking.

CDL: On The Road To Restructuring -- Raising FCF and EBITDA Ests: Q4 2007 Earnings Analysis

* Q4 Results Were Mixed. Net rev. declined 5.1% ($246m), which was pretty much in line with our 5.3% decline ($247m) est.  Such performance was attributable to CDL's radio stations (not its radio network) primarily in San Francisco, Washington D.C., Chicago, Atlanta, New York, Birmingham, Dallas and Los Angeles. Q4 EBITDA declined 16.0% ($71.4m) which was worse than our forecast of a 15% decline ($70m) due to higher-than-expected operating expenses.  EPS (excl an impairment charge) were $0.03 vs. our $0.05 forecast - the miss was due to higher operating and other expenses. The good news is that FCF/share of $0.13 beat our $0.12 forecast due to lower capital expenditure ($3.4m vs. our $5.5m estimate).

* No Specific Guidance Provided But It Sounds Like A Tough Year Ahead.  While management did not provide formal guidance, they did detail the significant challenges ahead.  The company's poor performance is attributable to general market weakness as well as station-specific issues.  While the general market weakness is out of their control, they are focused on fixing their station underperformance (which equates to $30-40m at ABC stations and $25m at CDL-legacy stations), which will likely take another 2 years. In addition, management is implementing a restructuring plan which should be completed in the next few months.  Due to our lower expense assumptions, we are raising our 2008 EBITDA and FCF estimates.  See page 3 for details.

* Mgmt Revises Timing Of $400M EBITDA Target Again.   Upon closing of the ABC merger, management was forecasting a combined EBITDA figure of $400 million for 2008. Based on the poor results and persistent weak market conditions, management is now pushing this target to 2010.  We have not published our 2010 estimates but can tell you that we are still below management's goal.

* Mgmt Is Sticking To Debt Paydown And Share Repo - No Dividend For Now.  Management is focused on reducing its debt, which is expected to be below $2.0bn by 2010.  They intend to do this via asset sales and free cash flow.  Management also mentioned that it would look to repurchase shares given that the stock is trading at an all-time low of $1.10.  The dividend is off the table for at least 2008 (and likely longer, in our view).