Thumbs up for Cox Radio


Zacks Investment Research isn’t exactly wild about the radio business, but it says Cox Radio is the “best positioned” company in a sector where fundamentals are getting weaker. Zacks applauds Cox Radio for its strong balance sheet.

Here’s what the research company had to say about Cox Radio in a summary of its latest research report:

“Cox Radio is scheduled to report earnings on March 4th at 11:00am Eastern Time. Fundamentals are set to get even weaker after 17 consecutive months of ad revenue declines as CXR’s ad revenue and EBITDA growth are eviscerated by the recession.

We expect the decline in revenue (down 6% in 3Q08) and station operating earnings (down 16% in 3Q08) to accelerate in the 4th quarter, driven by a weakening ad market and rising talent costs as Cox attempts to maintain its solid ratings.

When the company last reported, management indicated that October pacings were down in the low-double digit range and could worsen. The company’s ongoing share repurchases have lessened the impact on EPS, though we expect a low-to-mid teens decline in fourth quarter EPS.

Although it is shrinking, Cox Radio continues to generate healthy free cash flow and maintains the strongest balance sheet in the industry. At 2.9x (debt/EBITDA), Cox Radio is significantly underleveraged relative to its peers (radio group median is 6.5x), making it one of the few publicly traded radio operators with ample coverage of its debt service at a time of declining cash flow.

The company’s strong balance sheet will give Cox flexibility to develop new revenue streams and reinforce radio’s relevance as a very cost-effective local advertising medium, as listeners continue their secular migration to recorded music (iPods), satellite radio and to the Internet, which is taking ad share from Radio.

Radio’s strong and unique local reach is reflected in Cox’s firmer local advertising revenue, which declined just 4% in the third quarter, in the worst recession in decades, while national ad revenue fell 14%, more in line with the overall ad market.”