We view IHRT as a secular winner in the Audio space given its premium brand, unparalleled scale/reach, innovative management team, and massive technology platform. We’d highlight: 1) IHRT has the largest portfolio of radio stations (848 in ~160 markets); 2) it is the No. 1 podcaster in the U.S (per Podtrac’s August 2019 report); 3) the iHeartRadio app already has ~71MM MAUs; and 4) most important, IHRT is the only audio co. that is past its heavy investment spend; therefore, all it has to do now is monetize its various assets.
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Upgrading To Outperform. Alongside our sector move to Market Weight from Underweight, we’re upgrading COG to Outperform from Peer Perform. We’ve been on the sidelines at COG looking for a better entry point and waiting for expectations to reset around a $2.50/mmbtu price environment. With the stock now -20% over the last three months, Consensus coming down to 5% 2020/21 volume growth, and our $27 PT intact, we see an improved risk/reward and opportunity to own one of the best low-cost asset bases and steady FCF profiles amongst E&Ps.
Upgrading to Peer Perform. Alongside our sector move to Market Weight from Underweight, we’re upgrading SWN to Peer Perform from Underperform. While SWN has maintained its YTD outperformance gap vs. AR and RRC, the stock is -53% since our mid-April 2019 downgrade, which is the key driver of our upgrade. Challenges lie ahead, particularly getting to a position of generating sustainable FCF, but corporate and well cost reduction initiatives have come through with more capital efficiency also possible, and the balance sheet can survive $2.50 pricing, so we see a risk/reward is more balanced.
Moving SMID Natural Gas Sector To Market Weight. With our natural gas price outlook remaining $2.50/mmbtu through 2021, the sub-sector down 20% since our mid-Summer update, -36% YTD, and for some producers >90% off all-time highs, risk/reward is more balanced, and we move the group to Market Weight from Underweight. There are still challenges facing the natural gas producers in a $2.50 environment, but Consensus estimates are now more aligned around this price outlook, asset values remain below Strip pricing, and we see flat $2 pricing as lower probability scenario over the next 6-12 months given the supply response already occurring at $2.50.
Wolfe Research Senior Diversified Banks & Brokers Analyst, Steven Chubak, hosted a webcast to discuss takeaways from his recent NDRs with LPLA, MS, and EVR.
Wolfe Research Senior Analysts Steve Fleishman (Utilities & Midstream), Scott Group (Transports), Nigel Coe (Industrials), and Josh Silverstein (Oil & Gas Exploration & Production) hosted a webcast to go over their regional power outlook, gas additions vs. coal retirements, the renewables explosion and latest on nukes, implications for the rails, the impact on natural gas demand, the impact on industrials, and stock implications.
It’s been a strong and much needed reprieve for small cap equities over the past 3-weeks, as the bulls once again stepped in at key support, reversing what looked to be the start of a significant breakdown. This nearly 9% rally has helped to ease the Russell’s 12-month losses to 7%, with the index remaining roughly 10% off its peak from last August and stubbornly flat over the past 18-months. So, the question we keep asking ourselves - are small caps finally poised to accelerate out of this lengthy consolidation and negate the potential top? The chart below would suggest that the kindling is ready to go, it just needs a spark. Unfortunately, that is where our questions begin to arise. A fair amount of the top-down charts in today’s piece leave us with many more questions than answers. That said, if the Russell can successfully recapture strong resistance in the 1605-20 level, we’d have to respect it.
IHRT’s CEO Bob Pittman spoke at an Investor Conference today (09/19/19).
We’ve received several incoming questions about U.S. economic surprise indices, which have recently turned upward. Taking a step back, most economic surprise indices have been designed to measure whether incoming data has been generally beating or missing consensus expectations over the past three to six months. We’ve found these indicators to be helpful gauges in the past and that short-term trading activity is often highly correlated with economic surprises.
This morning (09/19/19) House Speaker Nancy Pelosi formally introduced her drug pricing bill via a 3-page summary (see pages 5-7). Similar to the International Pricing Index proposal introduced by the Trump administration, a key feature of Pelosi’s plan is the use of international reference pricing. We are still reviewing the plan but thought it would be helpful to pass along a couple of interesting data points on international drug pricing relative to Medicare Parts B & D. While Pelosi’s plan is somewhat less extreme than the earlier draft, it clearly remains aggressive relative to previous legislative efforts to reduce drug prices and the outlook for support from Congress and the Trump Administration remains uncertain.
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