Starts off with: "I am recommending stock in Entercom Communications Corp. (ETM), on the grounds that they are considerably undervalued. Of course, I wish I had issued this recommendation last week when they closed at $5.29 per share, but even now that they are at $7.30 per share, the company is still compellingly undervalued."
Don't forget to read the comments where the author takes it all back, when "somebody" points out that ETM can not expect to refinance 700 million dollars at an interest rate comparable to US treasuries. ETM's legacy radio consolidation boom lending rates are distorting current financials. ETM is profitable because money has cost them almost nothing for years. That won't last much longer.
The author initially made the same mistake the rest of us were making. ETM is analogous to an very under-water mortgage where the owner is hit with the quadruple whammy of reduced asset values, reduced cash flow income, a huge debt, and an upcoming interest rate reset which doubles interest expense payments.
Ultimately there is no equity in ETM. Debt liabilities are more than the market value of the assets. That is why they don't simply sell a few stations to reduce debt. They can't. The station sales price would only serve to prove there is no equity here.
The lenders rightfully own the future income of this company. And they will extract it.
What if they refinance out to 2015? Won't the fact that they are going out 4-5 years, instead of 10, make their rate more competitive than the 5-6% over 10 year treasurys you are talking about? Do you deny that if ETM shows 3-5% revenue growth, for the next 3 quarters, and pays debt down to, say, $625 million, that the funding environment will be much more attractive than it is now? Do you deny that if the economy returns to 4% growth, and we start generating 250-350K worth of jobs, monthly, within 6-9 months, that the funding environment will be much better? Won't the rates be lower than the 11% you are talking about, if they keep it as adjustable rate bank debt (LIBOR plus a margin)?
I still think you come across as biased here, painting an unrealistic worst case scenario, that has more to do with your "sky is falling" scenario for traditional radio revenues, as much as anything else.
It really comes down to what you think revenue growth will be over the next few quarters, and how the "ad rate card" of the radio industry can improve over those same next few quarters. I believe there is room for an upside surprise, and we certainly have gotten inklings of that in the conf. calls of companies like ETM and CMLS, it seems to me. I mean, if we get an "organic" revenue increase of somewhere around 3-4% for 2011, and ad rate increases of 3-5%, you could look at anywhere from a 6-9% revenue increase, which, considering the tight lid ETM is keeping on expenses, could result in more dramatic increases in op. income and free cash flow than many are expecting.
Of course, if you (stupidly, in my view) think revenues for ETM are likely to decline in 2011, then the "debt as ticking time bomb" scenario makes more potential sense.
Just don't mention internet radio as something that is threatening traditional terrestrial, is my one gripe. Most of the internet radio share is going to be captured by the traditional terrestrial players, as an extension of their current (broadcast) offerings.....not by upstarts.