Tuesday, November 14, 2006

Calls of Note Part 1

- Goldman Sachs is adding Cox Radio (NYSE:CXR) shares to the America's Conviction Sell list and see 27% potential downside to their price target as they believe the premium in the stock owing to a potential buy-in is overstated. CXR's historical relative premium owing to the chance that Cox Enterprises will buy-in the 34% public float has now widened to ~2X multiple points, with no change in Cox's acquisition-driven growth strategy, no visibly sustainable improvement in radio growth, and a slowed buyback program. Firm assignes only a 10% chance of a buy-in, which would imply a ~4X multiple point premium to peer valuations.

Catalyst: Select radio operators, including Cox Radio (albeit cautiously), cited signs of stronger trends in 4Q which has helped fuel a mini-rally in radio stocks. GS thinks "situational growth," that is, growth aided either by political dollars or political crowd-out, easier comps, better station ratings or other 1X items is masking the weak underlying trends and that as we approach 1Q2007, a truer picture of the still soft core ad trends will become clearer.

Notablecalls: The note is bound to get some attention among investors. Considering the rally the stock has staged, some will probably elect to get off the bandwagon in the n-t.

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