Monday, April 09, 2007

Calls of Note Part 1

- Goldman Sachs think the recent rebound in Cox Radio (NYSE:CXR) shares is unsubstantiated and see 16% downside to firm's $12.50 price target based on their belief the premium in the stock owing to a potential buy-in remains overstated. CXR's relative premium is still ~1X multiple point, with no change in Cox's acquisition strategy, no visibly sustainable improvement in radio growth in 2007, sub-par relative fundamentals, slowed buybacks and no credible signs the parent Cox Enterprises is set to buy in the 34% float.

Low-single digit revenue trends apparent in 1Q07 are unlikely to offset faster expense growth and, the firm, along with Cox Radio management, remains cautious on whether that level of revenue growth is sustainable through 2007. Given a muted revenue outlook, a targeted mid-single digit rise in expenses and limited further share repurchases set against the relative premium valuation and their view that a privatization remains unlikely in the near-term, they maintain Sell rating.

Notablecalls: GSCO added CXR to their America's Conviction Sell List on November 2006 and the stock has been kind to the shorts ever since. Thursday's spike was due to an upgrade by CSFB that quickly morphed into a short squeeze. There may be some buy or cover interest in CXR left, but I suspect that not before long the stock will start heading south again. See archives for more color.

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