CMLS

Please note, this idea was updated on 8/30/2013 and can be read here: Long - Cumulus Media Inc (Update).

On August 22, 2013, DeMatteo Monness (DM) interviewed one of its clients about his long thesis on Cumulus Media (CMLS). Steven Weber, DM’s Director of Research, conducted the interview. Topics discussed included: an overview of how the client assesses Cumulus’ business model, what growth drivers matter most, why trends in radio listenership are holding steady, what is a reasonable value for the company’s shares, and more. This summary note reflects the opinions and judgments of DM’s client, not the opinions or judgments of DM. DM does not exercise any control over the information or point of view expressed and reflected below.

Why you should care: The downside risk in Cumulus shares is minimal relative to the upside potential of owning stock in a company generating a FCF yield of nearly 30%. “With a [FCF] yield at this kind of level compared to interest rates it suggests a clear, material disconnect in the market. Radio operators are very predictable businesses.” 

Publicly traded companies mentioned include: Cumulus Media Inc. (CMLS), SIRIUS XM Radio Inc. (SIRI), Clear Channel Outdoor Holdings/ CC Media Holdings (CCO/ CCMO), CBS Corporation (CBS), Groupon, Inc. (GRPN)

Highlights

Can you provide an overview of the radio Industry and Cumulus’ business?

Cumulus Media (CMLS) was a mid-size radio player mainly focused on middle markets up until 2011 when they acquired Citadel Broadcasting (for $2.5 billion), and bought out their private equity partners’ stake in Cumulus Media Partners (which has operated Susquehanna Radio since the mid-2000s). Today, CMLS is the largest independent pure-play radio broadcaster. It operates nearly 600 radio stations in over 100 markets, placing it second in the market behind Clear Channel’s CC Media. CBS’s CBS RADIO is the next largest player in the US, operating 126 stations in 26 markets.