Bear Stearns analyst Vic Miller is out with new projections for 2008 – and he is not optimistic about radio, ranking the sector "Underweight" for investors. Miller sees potential positives for revenues, including election spending, but also negatives, such as share loss to the Internet, so he is betting on another flat year for radio.
As our readers no doubt know, 2007 has not been a good year for radio stocks. Miller notes that the average radio stock has lost 30% this year, while the average TV stock rose 35% (excluding companies involved in buyouts and such). The analyst notes that TV valuations now exceed radio for the first time since the 1996-97 timeframe. TV has benefited from a second revenue stream from retransmission consent, opportunities in the increasingly video-focused broadband Internet world and, of course, the growth of political ad spending.
"2008 industry revenues look flattish; while political dollars, the Internet, ‘fewer industry negatives,’ interest rate cuts and a potential ‘reach/CUME’ story could aid radio in 2008, economic forces (oil and higher interest rates are weakening households’ disposable income), continued share loss to the Internet, expense growth and lack of industry consensus may take a toll on 2008 industry revenues/EBITDA," Miller said in his note to clients. And he notes that there are unknowns as well – potential disruption from the PPM rollout and whether operators will hold the line on rates or "play for share" if the economy worsens.
Despite his bearish view on the sector, Miller does have some radio stock favorites: Cox Radio for its takeout value, Citadel for its "multi-pronged opportunities" and Radio One for its valuation.