Entercom Communications Corp. (ETM) is in the midst of both a cyclical slowdown, pressured by a weak economy, and a secular downturn, which has slowed industry growth to just 2 percent annually on an average over the last five years.
The industry has seen an uninterrupted decline for several years, and does not look likely to improve in the near-term. Best-of-breed, however, the company's same station revenue is decelerating more slowly than its peers, and we think it is in a position to outperform the industry when the cycle turns up.
Entercom has achieved its past growth primarily by acquiring under-performing assets, integrating them and achieving cost synergies. However, attractive takeover targets are dwindling after four years of aggressive acquisitions and the credit markets have not been hospitable since the sub-prime mortgage crisis drained capital from the system.
Indeed, with light cap ex requirements, Entercom continues to generate healthy free cash flow ($2.72 in the last twelve months), despite very tough macro conditions. In the meantime, the company continues aggressively buying back shares, repurchasing more than 3% of the total outstanding in the first half of 2008 alone. Trading at just 2.3x estimated 12-month forward free cash flow, we think the shares are compelling.
Sumit Singh contributed to the report.
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