Morgan Stanley Starts Neutral Coverage On iHeartMedia

iHeartMedia Inc IHRT is expected to continue winning market share in the terrestrial radio space, according to Morgan Stanley.

The Analyst

Morgan Stanley analyst Benjamin Swinburne initiated coverage of iHeartMedia with an Equal-Weight rating and a $15 price target.

The Thesis

iHeartMedia emerged from bankruptcy with a "more manageable" debt load that will fall from 5.7 times today to 3.6 times by the end of 2022, Swinburne wrote in a note. Over the same time period the company can also leverage its large size and consumer brand to grow revenue at a 2% compounded annual growth rate.

However, consumers continue opting for streaming services and this trend could continue impacting iHeartMedia's engagement trends, the analyst wrote. Local advertisers that are vital to radio stations continue to allocate more advertising dollars away from radio towards online platforms. In fact, each 5% reduction in revenue from ad dollars could translate to a 10% to 15% impact on EBITDA and a 25% to 35% impact on levered free cash flow.

Swinburne said the bullish case for iHeartMedia's stock may be warranted if the company shows it can take full advantage of secular tailwinds in the audio industry through smart speakers, connected cars and other new products. Also, if the U.S. economy outperforms versus expectations the company should be able to grow its core radio business to drive faster top-line growth. Under these bull case assumptions, the stock has an 85% upside potential.

Price Action

Shares of iHeartMedia traded around $13.12 at time of publication.

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