Thursday, October 05, 2006

Calls of Note Part 3

- Banc of America thinks Emmis Communications' (NASDAQ:EMMS) results scheduled for Oct 10 will be ugly. Thats's what they are saying right in the title.

Domestic radio revenue likely will be well short of their $72M estimate on key market weakness and recent programming changes. Firm projects EMMS' domestic radio revenue to decline 5% in FY2Q07. However, they believe that domestic radio revenue could be down as much as 10% YoY. EMMS' 3 largest markets (accounting for ~71% of domestic radio revenue) were down ~4% in the June-August time frame. AND the company underperformed its markets by nearly 500bp in FY1Q07 due to continued ratings weakness in L.A. and NYC. Overall ratings share declines continued in Arbitron's Spring '06 book (down 6%), and the recent format flip (8/17) at KZLA-FM could add downward pressure on revenue growth in FY2Q07 and FY3Q07.

Despite the likelihood that Emmis remains a public entity, they don't expect management to resume its normal practice of providing revenue guidance. They remain cautious on the stock as EMMS is levering up in the face of weak fundamentals. Leverage PF for the special dividend will be ~6.5x. And they expect YoY revenue declines to continue through the balance of FY07.

Maintains Neutral and $13 tgt.

Notablecalls: I don't dare to call this one actionable. But I wouldn't want to be long the common into earnings either.

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