Static at Radio One

An update has come out today on Radio One Inc. (ROIAK), in which senior media industry analyst Ann Northrop, CFA is stating her Hold rating on the company.  We excerpted the following details:

'Radio One is diversifying into businesses outside its core radio operations, which longer-term could offset the effects of radio's secular decline. Together with Comcast (CMCSK), the company started the African-American cable TV network TV One, which is expected to be cash flow positive in 2008. It is also investing in online content and an Internet portal.

'However, meaningful contributions from cable, content and Internet investments will not likely happen until 2009, in our view, and acquisition possibilities are limited by the company's highly leveraged capital structure -- the leverage ratio stands at 7.1x.

'Meanwhile, Radio One's near-term outlook is weak as Spanish-formatted broadcasters continue to take away market share, with Los Angeles being particularly hard-hit. Although the radio station in Los Angeles has been reformatted, we think it will take at least a few quarters for the ratings to improve from its present one which is Hold.

'Radio One is diversifying into businesses that complement its core radio operations, which longer-term could offset the secular decline faced in radio. It is also investing in content, recently acquiring a controlling (51%) interest in Reach Media, owner of the Tom Joyner Morning Show, and purchasing Giant Magazine.

'Like most media companies, Radio One is also developing an Internet portal in an effort to tap the rapidly growing Internet market that is usurping advertisers from other media outlets. We initiate our coverage of the company with a Hold rating and a six-month target price of $2.25.'

Don't Chase Iron Mountain

The following excerpts explain why Zacks senior services sector analyst Steve Biggs, CFA recommends a Hold on the shares of Iron Mountain Incorporated (IRM), the business services provider:

'Iron Mountain posted strong Q3 results, and appears to be positioned for growth into the future. However, much of the company's growth has been through acquisitions, which involves integration risk and becomes more difficult as the company's revenue base grows as it will be required to make larger acquisitions. Moreover, we are concerned about IRM's rising debt level.

'With significant appreciation in IRM shares over the past several months, we would not chase the stock. Shares of Iron Mountain have appreciated significantly since the summer, driven by a better than expected Q3 and a strong outlook. With the rise in stock price, shares are currently trading at 43.5x our 2008 EPS estimate of $0.85, a discount to the industry mean.

'Direct industry comparisons are difficult since most of IRM's most relevant competitors are privately held, such as SunGard Data Systems, Lason, Inc, and SOURCECORP Incorporated. Iron Mountain is trading at a significant premium to its publicly traded peers.

'As long as the company continues to perform at a high level, we believe the shares can maintain their current valuation, and perhaps increase slightly, but would not chase the stock at current levels. Our new six-month target price of $39.00 reflects a P/E multiple of 45.9x our 2008 EPS estimate of $0.85 per share, slightly above current levels.