An analyst says iHeartMedia, Inc.is limping towards the end of 2023, but the company is set up for great 2024. The broadcast media company is poised to benefit from a rebound in the advertising market and the 2024 U.S. election cycle. However, Mark Holder, Stone Fox Capital remains ultra Bullish on the iHM media stock with plans to continue repaying debt from positive cash flows.
iHeartMedia reported another tough quarter in Q2 2023 with revenues down 3.6%. Outside of the political boost from the mid-terms in 2023, revenues were only down 1.8%.
Holder believes the key is that revenues were only down a minimal amount in the off year for political revenues. The broadcast media space remains tough with revenues down sharply, but the key here is that revenues didn't collapse with podcast revenues helping to offset the declines.
According to Holder: "Even under these tough ad market scenarios, iHeart reported strong cash flows from operations leading to positive free cash flows. Operating cash flows were $57 million while free cash flows were $34 million.
"The Q4'22 revenues got a huge boost from the election with an estimated boost of $65.8 million, up $55.3 million from the prior Q4. iHeart won't see the boost in 2023, but the company is set for a 2024 where the ad market surely rebounds from the 2023 weakness. The election cycle next year provides an even bigger boost to revenues from the U.S. Presidential election plus the much larger digital audio group led by the podcasting segment.
"With the large debt levels of iHeartMedia, the media company producing positive cash flows are very beneficial. The revenue rebound next year due to the political ad spending will further help the company repay debt.
"iHeartMedia has net debt of $5.15 billion with weighted average cost of debt of 7.2%. Investors clearly want to see the company cut those debt levels and save on the interest expenses now pushing $100 million quarterly.
"The media company produced $57 million in operating cash flows in Q2 and the numbers should only improve in the 2H with the better ad market. Though, the numbers were down sharply from 2022 levels."
Holder's Key Takeaway:
iHeartMedia is struggling now, but the U.S election cycle will provide a timely boost to ad revenues next year. Due to leverage, the stock is very risky providing strong upside, if the business rebounds next year. Of course, the high debt levels leave limited margin of safety for any disruption to the business from a major recession in the next year.
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