As consumers move away from print media, alternate vehicles have emerged to provide music, movies, sports and other entertainment. In turn, many of these companies have become intriguing investment options, offering growth potential as their reach expands. With increasing car sales, more cars will roll off the line with factory-installed Sirius XM radios this year than ever before. Searching for new investment ideas, I will look at Cumulus Media (CMLS), Corus Entertainment (CJREF.PK), and Sirius XM Radio (SIRI).
Cumulus Media operates nearly 400 AM and FM radio stations in markets such as San Francisco, Dallas, Houston and Atlanta. The company does not pay a dividend, but its surging gains in revenue and earnings combine with growth to offer a tempting investment.
The company found itself at the center of a controversy when radio commentator Rush Limbaugh, a regular on some Cumulus stations, made offensive on-air comments about a female college student during his show. Many advertisers demanded their commercials be removed from the broadcast. While the uproar has been problematic, it could prove beneficial to Cumulus, as it prepares to debut a new show from ex-Arkansas Governor Mike Huckabee.
Powered by the acquisition and integration of rival Citadel, Cumulus saw its year-to-year earnings surge in the 4th quarter of 2011, climbing over 510%. The company appears to be poised for further gains in 2012, with analysts expecting earnings of $0.79 per share for the fiscal year.
While Cumulus Media enjoyed a great 2011, the company has some warning signs scattered throughout its financials. Its 4th quarter loss was the first the company experienced in a year. Cumulus' debts are mounting, and its $2.9 billion shortfall dwarfs its total cash of $47 million. Investors seem to be growing weary, as noticed by the fact that they hold nearly 35% of the company's stock float in short positions. Cumulus is not a portfolio-builder, but investors open to some risk could profit nicely if the company can continue its upward climb.
Corus Entertainment is another interesting play in the media sector. This $1.83 billion Canadian company owns around 40 television stations, and lists networks like Nickelodeon, CMT and the Oprah Winfrey Network among its assets. The inclusion of Winfrey's network has the potential to be especially appealing, giving Corus the opportunity to capitalize on the talk show host's meteoric popularity and the development of her unique Oprah's Lifeclass Tour, which is using a live tour and digital classrooms to reach a growing audience.
Corus is already building on a solid performance in 2011, where the company saw revenues and earnings rise (up 6.6% and 5.9%, respectively), while share prices increased nearly 3%. The company also recently purchased its Corus Quay building Toronto Port Lands Company and re-sold it to H&R REIT in order to renegotiate its lease agreement.
Unlike Cumulus, Corus is a more stable investment proposition. The company has not experienced the dizzying growth of Cumulus, but it has a low debt ratio (now at 57) and free cash flow of nearly $523 million. The company does not pay a dividend, but its projected growth of 9% this year is likely to attract a number of investors looking to enter the business segment.
Any conversation of alternate media eventually leads to a discussion of Sirius XM Radio. The dominant satellite radio provider, this $8.7 billion company is an interesting case study in short investing. Piling up cash (an expected $1.5 billion this year) as it accumulates debt (now over $3 billion), the percentage of Sirius shares held via short positions has soared to an incredible 26.7%. A number of analysts have tried to put a positive spin on this (calling it "short interest"); however, the more likely label should be risk. Many investors view Sirius as a speculative play. This is a reasonable conclusion, based on both the company's high debt and its flat projections for the year ahead.
The prospects of a significant share price increase at Sirius are not very good at this time. The company carries a forward price to earnings ratio of 23 and its price to book of 12.5 suggests an overvalued position. The company's relationship with the auto industry is a bright spot. As car sales continue to increase, it is likely that more will roll off the showroom floor with factory-installed Sirius XM radios. Although company revenue did increase by 6.5% in the 4th quarter, mounting debt could hamper any hint of a sustained rally.
As companies involved in broadcast media fight for market share and advertising dollars, people have to look carefully for the best investments in the sector. Since performance here relies on share price growth and not dividends, finding a company with stable increases and future expansion is more likely to bring long-term success.
I like Cumulus and Sirius for a small section of investors. People who have an appetite for risk may actually consider both companies, anticipating increases in share price that outweigh the inherent problems with debt. For these investors, both companies are interesting. However, Cumulus appears to be more appealing due to its higher upside.
For the majority of people looking for a new holding, I recommend Corus Entertainment. The company has a lower threshold of debt, and its earnings have been steady. Should its relationship with Oprah Winfrey generate interest, the low P/E of 12 and reasonable price to book ratio suggest the stock has room to grow. There are still good investments in broadcast media, and investors should consider taking to the airwaves with Corus Entertainment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.