iHeartMedia Stock Spikes

Shares of the radio station titan iHeartMedia wenrt soaring Tuesday after a bullish call on the stock by BofA Securities media analyst Jessica Reif Ehrlich.

Barron's reports Ehrlich upped her rating on iHeart (ticker: IHRT) by two notches, to Buy from Underperform, with a new price target of $26, up from $10. She argues that advertising will “come roaring back over the next several months,” with profits on an adjusted Ebitda basis (earnings before interest, taxes, depreciation, and amortization) returning to 2019 levels by year end. For 2021, she now sees adjusted Ebitda of $798 million, up from a previous estimate of $744 million.

The analyst sees a surge in ad demand ahead as small and medium-size businesses reopen, along with some sectors hard hit by the pandemic, like entertainment. She thinks the radio ad business will also benefit from cumulative drive time increasing—with April 2021 drive time more than double the level in April 2020.

Ehrlich also says iHeart’s digital growth remains robust, “primarily driven by podcasting.” And she says pent-up demand for live entertainment will create a tailwind for sponsorships and events. The company, she adds, has “manageable debt maturities with significant capacity to de-lever the business, facilitating a highly favorable capital structure shift in favor of equity.”

The analyst says she expects first-quarter results “will reflect a meaningful underlying sequential improvement in advertising trends, healthy modernization initiative savings and robust digital growth.”

For full-year 2020, iHeartMedia report revenue of $2.95 billion, down 20% year over year. Digital revenue increased 26% compared with 2019, including a 91% increase in podcasting revenue. The company posted adjusted earnings before interest, tax, depreciation and amortization of $538.7 million for 2020, a decline of 46% from the year earlier. In 2021, BofA Securities’ Ehrlich is modeling adjusted EBITDA of $798 million (vs. the analyst firm’s previous estimate of $744 million).

iHeartMedia is now organized into three segments: the Digital Audio Group, which includes digital assets including podcasting; the iHeartMedia Multiplatform Group, which includes more than 860 broadcast radio stations, networks, and sponsorships and events businesses; and Audio & Media Services Group. Starting with Q1 2021, the company will report results for each segment. According to the company the Digital Audio business represented approximately 16% of consolidated revenue and approximately 24% of its earnings for the year ended Dec. 31, 2020.