“Stand and Deliver.” That’s the call from Wells Fargo’s Steven Cahall on Audacy in one of a flurry of analyst reports issued after radio’s three largest companies reported their financial results Wednesday. Cahall says Audacy’s fourth quarter performance, which saw revenues rise 8% year-over-year to $344.7 million, were in-line with expectations.
Cahall is sticking with his previous forecast for Audacy earnings to come in at $310 million, on revenue of $1.44 billion, despite company management expectations that full year earnings will approach their pre-COVID 2019 level of $340 million. That’s why he isn’t budging from his “Equal Weight” rating and a $3 price target on Audacy’s stock. “Volatility over the last few years makes [Audacy] more of a show me story with above-average risk/rewards,” Cahall says. “We feel comfortable waiting for evidence of a recovery before raising our estimates.” Noting that Audacy “underperformed peers on revenue recovery through the pandemic,” Cahall is encouraged by Audacy’s revenue growth in the sports betting category (reaching $45 million in 2021), its exclusive partnership with Major League Baseball to represent the league's digital audio inventory, and continued ad recovery.
B. Riley Securities analyst Daniel Day is more upbeat in his assessment of Audacy, as evidenced in the headline, “AUD – Steep Earnings Inflection and De-Leveraging Expected to Drive Near-Term Share Price Upside.” That’s because Audacy’s Q4 revenues came in $4 million higher than B. Riley’s estimate. Investors in general gave Audacy a thumbs-up after its earnings release, sending shares up 23% for its biggest daily share price increase since spring 2020. As Audacy pares down debt to “a more manageable level” and as its recent investments in digital audio and sports betting (2400Sports, Cadence13, AmperWave, BetQL, Podcorn) begin paying off, Day sees “considerable” upside for the company. Factor in “better than expected” Q4 revenue results and Day is reiterating his “Buy” rating for Audacy stock with a $5 price target.
Day also reiterates his “Buy” rating for iHeartMedia with a much higher price target ($40). His biggest takeaways from iHeart’s Q4 report: management expects earnings to surpass their 2019 levels this year; the company is taking market share away from its digital audio competitors “with above-industry audience and revenue growth in podcasting;” and it plans to use a big chunk of its free cash flow this year to pay down debt. Although iHeart didn’t get the stock price lift Audacy did from it Q4 performance, Day says “management's commentary around the broadcast radio recovery, continued digital audio growth, and opportunity to de-leverage the balance sheet provided further confirmation that our thesis is playing out as expected.”
Day was also impressed with iHeart’s “better-than-expected spot broadcast radio revenue,” which he expects to recover to 92% of 2019 levels by 2023. “We expect growth in digital audio to more than offset long-term declines in broadcast radio,” he adds, forecasting that earnings will grow in “the mid-teens” through 2026.
Wells Fargo’s Cahall, meanwhile, reinforces his “overweight” rating on iHeart with a $34 price target. “We like the current trajectory of the business and see the opportunity for estimates to move higher through the year on continued digital execution, spot recovery, and political,” Cahall writes. In fact, he’s increasing his 2022 revenue forecast for iHeart’s Multiplatform Group (home to its 850+ stations) from $2.7 billion to $2.8 billion, and now anticipates the Digital Audio Group to rake in $1.1 billion, up from his earlier forecast of $970 million. “We see significant upside to the current share price, justifying our Overweight rating,” Cahall adds.
Finally, B. Riley’s Day weighs in on Cumulus Media, raising its stock price target to $26 from $23 based in part on Cumulus sticking with its earlier 2022 earnings guidance and a pledge to reduce its debt leverage ratio from 4.0 to 3.5-times. While that will delay shareholder returns forfew quarters, Day says it willgive Cumulus more financial flexibility. If Cumulus “successfully executes on both its debt reduction strategy and earnings recovery toward 2019 levels by 2023 as expected, we see considerable price target upside,” Day writes. He also likes the way the company is keeping a tight leash on costs after it reduced overhead by $75 million during the depths of the pandemic. Spot broadcast radio revenue for 2021 at Cumulus came in at 77% of its pre-pandemic 2019 level and Day sees that recovering to 85% by 2023 before beginning a “modest annual decline.”But digital revenue growth will “largely offset longer term radio declines” as the company’s earnings trajectory trends flat-to-up over time, he adds.