iHeartMedia: Rumbling On

Feb. 25, 2022 11:51 PM ETiHeartMedia, Inc. (IHRT), IHRTB27 Comments1 Like

Summary

  • iHeartMedia reported another great quarter on the path to sustainable growth in the broadcast radio and media sector.
  • The company guided to 18% revenue growth for 2022 while the market is hardly pricing in growth into the current stock price.
  • The stock trades at only 6.5x forward EV/EBITDA targets.
  • This idea was discussed in more depth with members of my private investing community, Out Fox The Street. Learn More »

iHeartMedia

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The market continues to overlook the growing digital platform built by iHeartMedia (NASDAQ:IHRT) due to a focus on high debt levels. The media company now has the growth platform for a strong future where the massive debt levels start disappearing. My investment thesis remains ultra Bullish on the stock now trading around $20.

Another Strong Quarter

iHeartMedia has traded mixed following a strong Q4'21 report despite the stock down over 30% from the highs. The war in Ukraine makes any analysis of the market moves post-earnings difficult to analyze. What is easy to analyze is that the stock is insanely cheap following another strong quarter and guidance for promising revenue growth as the world normalizes in 2022.

The legacy Multiplatform Group still hasn't returned to 2019 revenue levels, but iHeartMedia was near topping those levels. The Multiplatform Group generated Q4'21 revenues of $726 million, down from $849 million back in Q4'19. The impressive growth story of the Digital Audio Group sets the media company up for substantial growth in the future with revenue of $273 million, up $101 million from last year and $161 million from 2019.

Revenue slide

iHeartMedia Q4'21 presentation

iHeartMedia reported total revenues of $1,062 million for impressive 14% growth considering the political ad surge from Q4'120. The company is now producing revenue above 2019 levels due to the growth of digital.

The media company beat guidance for just 10% growth and actually would've reported revenue growth of 25% without the political boost in the prior year. As an example, the Audio & Media Services division saw revenues fall 35% to just $66 million in the quarter.

The Podcast segment is still seeing massive growth. Revenues were up 130% in the quarter to $97 million. The big key here is that Podcast revenues are now starting to become material with revenues reaching 9% of total revenues while the Digital Audio Group is now 26% of total revenues.

Podcasting remains highly under monetized providing a huge catalyst over time. iHeartMedia now has over 30 million monthly active listeners.

Don't Get Lost On Debt

The market shies away from iHeartMedia due to the company having a massive $5.4 billion net debt total. The company reported total 2021 adjusted EBITDA of only $811 million, though up substantially from $539 million in the prior year.

Chart
Data by YCharts

The company guided to ~18% revenue growth in Q1'22 after January already produced growth topping 18%. iHeartMedia remains on path to top the $1+ billion adjusted EBITDA generated in 2019 and suggests heading towards a leverage target of 4x.

Under a scenario where iHeartMedia pays down $250 million in net debt this year, the media company would need to produce adjusted EBITDA of $1.28 billion to reach this target. Management predicted the company making significant progress towards this target, but iHeartMedia topping the $1 billion EBITDA level would be an impressive result.

With over 50% EBITDA growth over the next few years from the still beaten down 2021 levels, iHeartMedia is an incredible bargain. The stock only has a market cap of $2.8 billion, or a minimal 2x EBITDA targets. Of course, the EV/EBITDA multiple is closer to 6.5x with a current enterprise value of $8.2 billion.

Not only is the stock still massively cheap, but the future free cash flows will constantly lower the EV making the stock even cheaper. As an example, as iHeartMedia cuts net debt to $4.0 billion the stock could trade above $100 based on a simple 15x EV/EBITDA target.

Takeaway

The key investor takeaway is that iHeartMedia is far too cheap here. As the company gets traditional Broadcast Media sales beyond prior 2019 levels, the company will grow revenues far beyond those levels. The market still treats the stock as if the company doesn't have any growth while having risky debt.

Investors should use the weakness to load up on iHeartMedia as the company takes adjusted EBITDA to new heights on the backs of digital audio led by the biggest podcasting network.

If you'd like to learn more about how to best position yourself in under valued stocks mispriced by the market during 2021, consider joining Out Fox The Street

The service offers model portfolios, daily updates, trade alerts and real-time chat. Sign up now for a risk-free, 2-week trial to start finding the next stock with the potential to generate excessive returns in the next few years without taking on the out sized risk of high flying stocks. 

This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.


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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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