By Ronda Fears
Nashville, Dec. 12 - Bear Stearns & Co. convertible analysts are recommending Emmis Communications' 6.25% convertible preferred for outright and hedge investors, noting some resolution to operating issues.
"For the outright and the equity income-oriented investor, the preferred's 8.24% current yield is very attractive versus no yield on the common. Further a breakeven of 3.90 years, in our opinion, is modest. For the outright investor, this is a pure yield pick-up play on a relatively low premium name with an attractive breakeven," the analysts said in a report Thursday.
"For the swap investor, the current yield combined with a relatively modest premium of 47%, in our view, offers a good cost-of-carry trade. While the bond floor may not be meaningful, we feel that a 65% market hedge adequately protects the investor from a modest downside."
"We have considered recommending the trade before on a very heavy hedge until near-term [radio] ratings and revenue issues are resolved," the analysts said.
"Given that some of these issues have been laid to rest, we think Emmis presents an attractive entry point into Emmis' volatility. While the valuation may converge once ratings erosion stabilizes, we feel that the near-term uncertainty presents trading opportunities in the name. "
The analysts added, however, that "given Emmis' leverage, with total debt of $1.24 billion, and modest free cash flow of $41million, we feel any deterioration in revenues will reflect on the credit."
But, the analysts noted that Bear Stearns media analyst Victor Millers considered Emmis' presentation at the UBS Warburg media conference as both upbeat and encouraging. Miller currently has an outperform rating on the common with a $28 price target.
Emmis announced the hiring of Barry Mayo to oversee the radio operations in New York, its most important market, which reduces concern about radio growth slipping.
The ratings uncertainty introduces volatility in Emmis' earnings guidance for a 4% decline in radio revenues and 5.5% decline in radio cash flow, the analysts said.
"Given Emmis' penchant for conservative guidance, we think there is potential upside to current quarter guidance and potential downside to the 6% radio growth that Bear Stearns expects," the analysts said.
Emmis 6.25% convertible preferred
| Price: | 37.938
|
| Common: | $20.125
|
| Conversion premium: | 47.28%
|
| Conversion price: | $39.063
|
| Current yield: | 8.24%
|
| Delta: | 65%
|
| Yield to maturity: | 8.47%
|
| 100-day volatility: | 64%
|
| Call price: | 51.7855
|
| Spread: | 1,100 basis points
|
| Credit ratings: | CCC+/Caa1
|
|
|
© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere.
For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.
