After hearing Q3 results from Entercom last week Wells Fargo Securities analyst Marci Ryvicker has lowered her Q4 revenue expectations for the radio company. And while the current stock price is below her $6-8 value range, the analyst is telling clients the best move is to stay on the sidelines “due to macro uncertainty.
“ETM is a little messy for a lot of reasons,” Ryvicker said in a research piece. “ETM reported mixed results, with revenue slightly below our estimate and EBITDA above. EPS were $0.22 as-reported, but excluding the loss on sale/disposition, EPS were $0.05 higher, at $0.27 vs. our $0.24E. ETM has been making a lot of operational changes in specific parts of its station portfolio, which should be beneficial longer term but for now are dilutive. Of all the radio management teams, we trust ETM the most, but in such a volatile market with such an uncertain economy, it is hard to see the forest through the trees. 2011E and 2012E move around quite a bit – revenue is slightly lower, EBITDA higher and EPS mixed – 2011 EPS moves to $0.92 from $0.88, due to lower operating expense in Q3 and Q4; while 2012 moves to $0.42 from $0.65 due to higher interest. While a catalyst for the stock is likely upon refinancing, we remain on the sidelines until we see an inflection point in fundamentals.”
Entercom CEO David Field reported that Q4 is pacing down 5%, but Ryvicker told clients there is more to the story. “ETM has a few issues going on in Q4: i) format changes, as mentioned above; ii) the absence of $3M in political; iii) the Boston Red Sox missing the playoffs; and iv) the absence of the Boston Celtics given the NBA lockout. Management specifically stated that excluding the first 2 items, core revenue is pacing +3% in Q4 – we would anticipate that core pacings are even higher excluding the second 2 items.” A plus noted by the analyst is that expenses were lower than she had anticipated in Q3 and that cost-cutting is expected to favorably impact 2012.
Looking at Q4, Ryvicker is now projecting that Entercom’s revenues will be down 5.2% to $96.8 million, which is worse than her previous projection of a 3.7% decline. But because of the cost-cutting she is projecting that station operating income (SOI) will decline only 12.7% (not 14.5%) to $34.2 million.
Looking ahead to 2012 the analyst is still expecting revenues to be about $398 million, but that’s now a 3.5% gain, rather than 2.9%. and she expects SOI will jump 9.7% to $131 million. She had previously forecast a 4.5% improvement to $124.2 million.
RBR-TVBR observation: While those 2012 estimates look pretty good, Ryvicker is cautious – and for good reason. Radio stocks are unloved on Wall Street and it’s going to take a lot of good quarters to bring back interest in the sector. Even then it will be hard to heat thing up until there are more decent-sized radio stock floats (which would seem to require some IPOs) and more analysts covering the sector. Those are things that will not come quickly. A long-term investor might do some bargain shopping now, but only if they are really patient about a payoff.