Wall Street Sounds Off on Radio Daze

Wall Street continues to hammer away at the radio industry.

Analysts at Goldman Sachs, RBC Capital Markets and A.G. Edwards either downgraded radio stocks or cut their estimates Thursday. These reports -- along with notes earlier in the week from such firms as J.P. Morgan and Banc of America -- reflect increasing pessimism about demand for radio advertising despite the improving economy and the strength of other advertising media.

The mood among analysts also underscores the apparent despair felt by Mel Karmazin, the radio industry veteran who resigned his post at Viacom (VIA.B) earlier this month. His decision was driven in part, reportedly, by his frustration with the performance of Viacom's Infinity radio division.

Radio giant Clear Channel Communications (CCU), after setting intraday 52-week lows, closed Thursday at $36.71, up 87 cents. Emmis Communications (EMMS), in the wake of a downgrade by Banc of America and an estimate cut from A.G. Edwards, slid $1.30, or 6%, to close at $20.02.

Better Than Never

Cutting his ratings on Clear Channel, Westwood One (WON) and Citadel Broadcasting (CDL) from outperform to in line, Goldman analyst Richard Rosenstein was almost apologetic in the timing of his report, calling the downgrades, "in many respects, late."

In answering the question "why have we been wrong on the group?" Rosenstein cited several factors. He noted the weaker-than-expected recovery since the Iraq war last year, along with second-quarter revenue growth that has been "more tepid" than forecast. The analyst also pointed his finger at July and August ad business that was starting out weak, rather than (as in months past) fading as the calendar progressed.

"Overall, our biggest surprise has been the degree to which radio inventory would be commoditized, and how soft pricing would be, given the consolidation of ownership that has occurred over the last decade," writes Rosenstein.

Goldman has had "an investment banking services client relationship" over the last year with all three of the companies Rosenstein downgraded.