Entercom Communications’ third quarter earnings report offered Wall Street analysts mixed results. Earnings per share slightly missed the consensus analyst estimate. On a same-station basis, net revenue in Q3 dropped as pro-forma Adjusted EBITDA slipped by $3 million.
President/CEO David Field was satisfied with the results, which were in-line with forecasts and pacing. And, as Gregory Vousvounis, a full-time investor mainly focused on U.S. equities, writes for Seeking Alpha, he has every reason to be content.
Vousvounis dissected Entercom’s quarterly earnings report and offered a detailed analysis.
First, he notes that while revenue declined by 4% in Q3, it is an improvement from Q2 — as an 8% revenue decline was seen from April through June.
Second, Vousvounis points to cost-cutting and expanded margins at Entercom as “softening the blow to EBITDA.”
Third, the required divestitures necessary for Justice Department approval of its Reverse Morris Trust-fueled merger with CBS Radio are now complete. As such, cash is available for debt repayment.
Another plus investors should be pleased about is the launch of the Entercom Audio Network, Vousvounis says.
“Entercom’s foray into the national advertising market seems to go as well as expected —they are, after all, the second-biggest radio network in the U.S.,” he says.
Most importantly for Vousvounis is that, according to Field, Q4 is the “turnaround quarter” as the company’s revenues are up 4% year-over-year so far into the quarter. Political spending accounts for only half of that increase.
“If this trend continues I believe that the market will re-price Entercom quite favorably as the only substantial bear argument will be proven moot,” he declares. “The only bear arguments remaining for the stock will be a potential recession and the possibility of radio becoming disrupted at some point into the future.”
Entercom CFO Rich Schmaeling noted in the Q3 earnings call that the company will exceed its 2018 target for net cost synergies. Vousvounis is pleased about that.
Meanwhile, a “medium-term trend” worth watching is Radio.com, used by Entercom “to increase its reach and monetize its existing content even more. If Entercom manages to make its content medium agnostic (radiowaves/internet) while keeping a big enough audience, it would change completely how investors perceive the future of the radio industry.”
Vousvounis last wrote about Entercom on July 13, when he concluded that the company “will be a multi-bagger” over the next three to five years. Looking back, he believes his thesis about Entercom successfully integrating and turning around CBS’s assets “is playing out even better than what management expected … things are going well so far, and in a quarter or two, this should be obvious even to the most skeptical investors.”
At 1:11pm Eastern, ETM was trading down 13 cents to $7.09, roughly $1 ahead of a year-to-date low seen in late October. The second half of 2018 hasn’t been kind for Entercom shares. However, should investors concur with Vousvounis, acquiring ETM shares today could reap significant dividends in the coming quarters.
