CCO

Publicly traded companies mentioned herein: Clear Channel Outdoor Holdings Inc (CCO), iHeartMedia Inc (IHRT), Lamar Advertising Co (LAMR), Netflix Inc (NFLX), Outfront Media Inc (OUT)

Highlights

The presenter is long shares of Clear Channel Outdoor Holdings Inc (CCO), one of the three scaled outdoor advertising businesses in the US along with LAMR and OUT. Outdoor advertising (MSD% of the US advertising industry) is a solid business, historically growing at a GDP+ rate, and many investors believe the category can’t be disintermediated the way other advertising categories can be (i.e., can’t turn off, skip, block). Prior to COVID, it had generally been a resilient category, and it should be going forward as well. CCO was spun out of IHRT in 2019 to IHRT’s creditors. The timing was poor, as the pandemic ensued less than a year later and had a material impact on the outdoor advertising business. Reasons to be bullish on CCO include a recovery in outdoor advertising post-COVID, an upcoming leadership change, a potential divestiture of CCO’s European business, and an ongoing upgrade cycle to digital displays. Based on his expectation that CCO sells its European business and uses the proceeds to delever, he thinks the standalone US business can generate ~$550MM of EBITDA in 2023 and garner an 18x multiple (LAMR and OUT trade at 18x and 22x consensus 2021 EBITDA, respectively) to reach a price target of $10 per share (vs. the current sub-$3 share price). Over the longer term, there could be additional upside since the outdoor advertising industry will continue to grow.