With its stock value at perilously low levels, Cumulus Media‘s fiscal 2016 results has gone under the microscope at online Wall Street advisor Capital Cube. The No. 2 owner of AM and FM stations was placed side by side with Entercom, Saga Communications, Salem Media Group and Radio One.
Here’s what Capital Cube had to say about the company, which saw its shares hovering between 41 and 42 cents at Thursday’s Closing Bell.
For one, Cumulus is holding onto its market share. Here’s how Capital Cube explains this.
“Cumulus’ change in revenue this period, compared to the same period last year of -3.01%, is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group,” it says.
Revenue changed by 4.68% from Q3 2016. But, earnings fell by an astounding -1,276.04% compared to the immediate last period.
Thus, Cumulus is on the right track, as earnings have climbed in every quarter since Q1 2016. The severe problem for Cumulus is when revenue growth versus earnings growth is put in comparison to Salem, Radio One and Saga.
“The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 56.19% to 55.10%, as well as issues with cost controls,” Capital Cube says. “As a result, operating margins (EBITDA margins) went from 19.39% to 18.45% in this time frame. For comparison, gross margins were 52.01% and EBITDA margins were 14.31% in the previous period.”
Capital Cube then looked at the Gross Margin Trend for Cumulus compared to the three other radio companies.
“Cumulus’ decline in gross margins has not produced any significant offsetting improvement in its working capital,” it says. “This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 103.50 days, compared to last year’s level of 75.91 days.”
Still, Capital Cube notes that it remains important to examine a company’s cash versus earnings numbers in order to gauge its performance, and judge if it is sustainable. In the case of Cumulus, its change in operating cash flow of 160.2% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group, Capital Cube says. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.”
It’s one key reason why Capital Cube declares CMLS shares to be “Undervalued,” giving investors seeking a bargain investment hope for a rebound.
