iHeartMedia Stock Tumbles

There’s trouble coming in the advertising market, and that is not good news for investors in iHeartMedia, the largest U.S. operator of radio stations.

Barron's reports IHeart shares are getting clobbered on Friday after Morgan Stanley media analyst Benjamin Swinburne cut his rating on the company to Underweight from Equal Weight, with a new price target of $11, down from $25. IHeart stock was down 10.2%, at $9.85, in recent trading.

💸For the year, iHeart shares are down 53%.

Swinburne says a possible recession and the company’s highly leveraged business—the company has more than $5 billion in net debt, with a market cap of just $1.5 billion—creates “outsized risk to the equity.” He also sees the company’s core broadcast radio business “as structurally challenged by shifting consumer listening habits.” And he notes that while iHeart’s digital audio business is growing impressively, it has lower margins than the core broadcast business.

Swinburne’s downgrade was part of a broader cautious call on the outlook for the advertising business. He reduced his 2023 ad spending outlook to price in “a mild recession.” And he adds that “decelerating ad growth with recession risk” also points to pressure on valuation multiples.

The analyst also cut his rating on Lamar Advertising, a billboard company, to Equal Weight from Overweight, with a new target of $103, down from $135. He also trimmed price targets on Outfront Media (OUT), Clear Channel Outdoor CCO, Interpublic Group, and Omnicom Group. All of those stocks are down 4% or more on Friday, excepting Omnicom, which is down 3.8%. He also reiterated his Underweight rating on Sirius XM Holdings SIRI, where he is cautious on the ad outlook for its Pandora streaming radio business.