The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
Friday afternoon (12/21) LAMR formally announced its acquisition of 8,500 billboards in 5 markets (Greenville/Spartanburg, South Carolina; Raleigh-Durham, North Carolina; Greensboro/Winston-Salem, North Carolina; Athens, Georgia; and La Crosse, Wisconsin) for $418.5MM from private company Fairway Outdoor Advertising. According to the release, the transaction represents a seller’s multiple of 12x trailing EBITDA, and LAMR expects to realize $4MM of synergies in 2019 (implying a buyer’s multiple of ~10.8x). The all-cash acquisition was funded under LAMR’s bank credit facility and new $175MM accounts receivable securitization line. We have pro-forma’d our model for the new boards, which increased our ‘19E/’20E revenue, EBITDA, and AFFO/share to $1.72B/$1.78B, $770MM/$806MM, and $5.79/$6.14 from $1.65B/$1.71B, $735MM/$770MM, and $5.59/$5.92.
Specifically, last night (12/19/18) Crain’s Chicago Business reported that LAMR is nearing a deal to purchase billboards located in North Carolina, South Carolina, North Georgia, and Wisconsin in a transaction valued at approximately $416.5MM from private company Fairway Outdoor Advertising. As of now, there is still no official announcement but we are getting questions on what this could mean from an accretion/dilution perspective for LAMR. While there are a lot of moving pieces and nothing is confirmed, we did run some math netting us potential accretion ranging from $0.03-$0.13 (+0.6% to +2.3%) to our ‘19E AFFO/share of $5.59. If we apply LAMR’s current ‘19E P/AFFO multiple of 11.7x to a potentially “new” AFFO/share estimate of $5.62-5.72, we get an additional $0.35-$1.50 of equity value, which is not a huge amount of upside in our humble opinion. One other thought we have in the back of our mind is that this transaction might signal that something more transformative is NOT coming – or that LAMR’s potential participation in something transformative is smaller than we had thought.
We went straight from our launch (check out our 252-page slide deck – which was NOT an easy feat) to a whirlwind of marketing – hitting NYC, NYC (not a typo), Boston, the Mid-Atlantic, and more NYC. Ahead of us is CT, the West Coast, NYC (again, not a typo), and then Europe (Cheers!). The biggest surprises from our first set of meetings have been: 1) The fact that just about every conversation has begun with New DIS and New FOXA (there are way more bulls than bears). 2) There appears to be significant incremental interest in OUT and ATUS. 3) There appears to be significantly more concern re. CBS & VIAB. 4) No one has pushed back on our “downgrade” of DISH (Peer Perform). And 5) Local isn’t a huge focus due to macro and leverage. BOTTOM LINE: We feel incrementally positive on New DIS, New FOXA, CMCSA, ATUS and OUT; we are worried that our positive call on VIAB might take longer to play out.
While LAMR seems to be hitting on all cylinders, with top line growth back to +3% and EBITDA growth back to MSD, we’re struggling with what gets the stock to move much higher from here, especially since it’s still way too early to know if the relative top-line strength LAMR saw throughout 2018 will continue into 2019 and beyond. We’re also a little bit afraid that a potential CCO transaction could prove to be less accretive than expected, as our BEST case scenario suggests another $0.09/share of AFFO relative to our current $5.59/share expectation (1.7% upside). Remember, LAMR is committed to an investment grade balance sheet so any large deal will likely tap the ATM (At The Market) shelf. Trading the richest of our local media names, at 13.7x 2019 EV/EBITDA, we don’t see media investors getting involved at these levels. And while the stock trades at a relatively inexpensive P/AFFO valuation (13.5x 2019E), we’re not sure what gets the incremental REIT investor involved if he/she isn’t already. From where we sit today, we unfortunately see LAMR UNDERPERFORMING its local peer group relative to the S&P. Thus, we initiate with an Underperform rating and a $79 price target.
We think AMCX is doing the absolute best it can with the assets it has. And it has been a good stock – relative to the rest of our sector(s) under coverage, +6% YTD vs. the S&P, +1%. But we’re not sure that the “as-long-as-it-isn’t-as-bad-as-expected-thestock-will-work” thesis is sustainable. We want to be clear – our call is that this stock is likely to underperform its peers next year, but we still get 16% upside from today’s price. It just isn’t enough for us to hang our hat on – we would love to see real momentum (or even stabilization) in the story from some of the really good content that AMCX has on its schedule (Better Call Saul, Preacher, Into The Badlands, The Son, Dietland, The Terror, Lodge 49, McMafia, etc.). But it still feels as if there is so much reliance on The Walking Dead (TWD) – just listen to the last earnings call or read the transcript. You know how many times TWD was mentioned in prepared remarks? We counted – it was 23. That’s way too many for me to survive a drinking game (although admittedly I am a total light weight so maybe I should say that is way too many for ERIC to survive a drinking game – he said he’s willing to find out). So relative to our expectation for its peers, we initiate on AMCX with an Underperform and $66 price target.
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