Shares of iHeartMedia shot up 13% in Tuesday trading in New York, following a bullish analyst report that raised its rating on the radio and podcasting giant two notches to Buy from Underperform. BofA Securities media analyst Jessica Reif Ehrlich set a new price target on shares of “IHRT” at $26, up from $10. The stock closed Tuesday at $19.79, its highest showing since returning to the public markets in July 2019. Shares continued to climb in after-hours trading.
Volume was very heavy with nearly 5.5 million stock trades Tuesday compared to average volume of 1.2 million.
In her favorable call, Ehrlich contends that advertising will “come roaring back over the next several months,” according to Barrons. She says she expects the company’s earnings to return to 2019 levels by the end of 2021. Her latest forecast is for iHeart to deliver $798 million in earnings for 2021, up 7% from a previous estimate of $744 million.
As small- and medium-sized businesses reopen their doors, Ehrlich foresees a robust rebound in ad spending, including in sectors hit hard by the pandemic like entertainment and live events. Pent-up demand for live entertainment will create a tailwind for sponsorships and events. The radio industry will also benefit from increased drive time listening, with April 2021 drive time more than doubling that of April 2020, she predicts.
The company recently realigned its management structure and reporting segments, which include the creation of a separate operating unit, the Digital Audio Group. The goal is to give investors better visibility into iHeart’s digital business, which contributed 16% of revenue and 24% of earnings in 2020.
In her note, Ehrlich calls the company’s digital business robust, thanks in large part to podcasting.
The analyst says she expects iHeart’s first quarter financial performance to “reflect a meaningful underlying sequential improvement in advertising trends, healthy modernization initiative savings and robust digital growth.”
She also likes the looks of its balance sheet, singling out “manageable debt maturities with significant capacity to de-lever the business, facilitating a highly favorable capital structure shift in favor of equity.”