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 - Get Report), after setting intraday 52-week lows, closed Thursday at $36.71, up 87 cents. Emmis Communications ( EMMS - Get Report), 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 and Citadel Broadcasting ( CDL - Get Report) 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.

For buy-and-hold investors, says Rosenstein, radio companies should be valued on the basis of their "considerable" free cash flow generation. "In the near term, however, forecasting even revenue growth from one month or quarter to the next has been challenging," he writes, "and there appears little reason to believe the market would accept the notion of stronger growth until some evidence of it emerges."

With investors more likely to judge radio companies by their current earnings before interest, taxes, depreciation and amortization, "it would be difficult to characterize valuations currently as truly compelling," Rosenstein writes.

Other problems are that there's too much advertising supply, and prices are eroding as the industry struggles to fill it, according to Rosenstein. Advertisers' perception of the return on investment in radio advertising has been declining in recent years, he says.

Banks Are Open

Also on Thursday, RBC Capital Markets analyst David Bank lowered his radio industry growth estimates from 5% to 3% for the current quarter, from 6.5% to 5% for the third quarter, and from 8% to 6% for the fourth.

Citing conversations over the past few days with sources involved in the national radio advertising business, Bank says that the pace of national advertising business written for June, July and August appears to be shrinking from last year's levels, not growing. Advertising among telecom, home improvement and, to a lesser extent, entertainment clients appears to be slowing, he says. And, surprisingly, the recent explosion of political advertising on TV "has not yet materially impacted the radio landscape," he writes.

Meanwhile, A.G. Edwards cut its estimates and price target on Emmis, Westwood One and Clear Channel, though analyst Michael Kupinski retained his buy ratings on those companies.

Like Bank, Kupinski also cited weakness in national advertising sales, which account for 20% of radio industry revenue.

Noting that radio stocks, down 19% since April, have significantly underperformed the general market indices, Kupinski says the reason is that companies aren't overdelivering on their guidance; rather, he says, they are coming in at the middle to low end of the ranges they are forecasting for their financial performance. "We believe that the radio stocks are near the bottom, however," he writes.

Click here to read a letter about this story.