Recently, IHeartMedia (NASDAQ:IHRT) took one basic notion about the economic landscape and turned it soundly on its head. Anyone who, before today, believed radio stations to be a dead media must now reconsider the notion following IHeartMedia's incredible advances that saw the company hit all-time high share prices at one point. The gains continued into this morning, and though some profit-taking seems to be kicking in, the company is still over its yesterday close that featured that exciting new milestone.
A Major Boost from Bank of America
The biggest cause in the hefty gains for IHeartMedia came from Bank of America Securities, whose analyst, Jessica Reif Ehrlich, issued a double upgrade on the company, taking it straight from “underperform” to “buy.” Ehrlich also bolstered the price target, nearly tripling the original from $10 to $26 per share.
So what prompted such a huge swing in sentiment at Bank of America? Ehrlich, in notes to investors, noted that the company's digital growth has been substantial, referring to it as “robust.” Moreover, that digital growth is likely to catch some tailwinds from the overall economic environment; with states throughout the US in some state of re-opening, up to and including “completely re-opened”, the notion that advertising dollars will start to come back in general is sound.
Ehrlich also noted the company's recent moves to de-leverage itself; thanks to bankruptcy proceedings from May 2019, the company now has “...a highly favorable capital structure shift in favor of equity.” Just to round things out, Ehrlich also expects the company to be more attractive to users; Ehrlich is looking for drive-time radio use to double this month against April 2020's figures, as offices start reopening to match the rest of the economy.
Hardly Alone on the Analyst Front
As daring as Ehrlich's upgrades were, they actually join a larger body of commentary from the analyst pool, as revealed by our latest research. IHeartMedia has been regarded as a consensus “buy” for the last year now, though the ratios making up that consensus have shifted.
A year ago, the company had six “buy” ratings and three “hold” ratings to its credit. Six months ago, that shifted to five “buy” and two “hold,” which pretty much maintained the ratio of two “buy” for one “hold”. Three months ago, it was the same story: five “buy”, two “hold”. That brings us to today, where we're at six “buy” and two “hold”, taking us to three-to-one for the first time in over a year and a half.
Price targets, meanwhile, have increased substantially in recent weeks. The company currently has an average target of $18.25, with a high of $26 and a low of $10. Three price target hikes have been seen so far this year, with JPMorgan Chase increasing from $13 to $17, Wells Fargo going from $14 to $20, and Morgan Stanley doing likewise just yesterday.
Pinning Hope on the Recovery Narrative
Much has been made of the “recovery narrative” in trading of late, and not without reason. The idea that, as states allow the businesses contained within to function normally once more—or at least function as an approximation of normal—the businesses will do better than they did when they were forcibly crippled makes sense. All else being equal, after all, a pipe that's half-clogged will allow only half the water through that a brand-new pipe will.
With that in mind, it therefore makes sense that companies that previously restricted their ad spending will suddenly ramp it up, as they now have a reason to once more. Plus, advertisers that were previously out of the picture—like upcoming movie releases—will be better able to get back into the fray as well.
It's a bit premature, though, to say whether or not IHeartMedia will be a direct beneficiary of this ad spend, and by how much. After all, we've been seeing a lot of ad spend go increasingly digital these days; just look at the impact this has had on streaming media services like Roku (NASDAQ:ROKU). While IHeartMedia certainly has a presence therein thanks to its podcast properties as well as the IHeartMedia app itself, the idea that ad spend will flood into that particular form of digital is tenuous at best. Additionally, while the will may be there, the listeners may not be. Ehrlich's projection of massive drive-time radio gains doesn't seem to mesh with the overall mood; telecommuters are staying telecommuters in a surprisingly large number of cases.
Still, there are certainly several potential tailwinds to come for IHeartMedia, and that should give investors a note of confidence. While it doesn't necessarily provide the entire symphony of confidence that some see coming, some further gains likely aren't out of line as normalcy begins to approach once more.
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