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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: MrThesp who wrote (34165)	4/29/1999 10:15:00 AM
From: JeffA	Read Replies (1) \| Respond to of 90042

ROTFL! I thought I made them mad with my penny news.

To: MrThesp who wrote (34165)	4/29/1999 10:15:00 AM
From: Neil H	Read Replies (1) \| Respond to of 90042

Article from IInvestor on OSI On February 27th, we issued a 'sell signals' on Outdoor Systems(NYSE: OSI) at a price of $27.94. The stock closed Wednesday at $25.81, down 7.7% from our sell recommendation. But we still think that the stock has a long way to drop. Looking at first quarter earnings and profitability measures from full year 1998, it appears that Outdoor Systems will not achieve the 25%-30% secular growth rate being forecasted by the company's investment bankers. Like this Article? First quarter revenue rose 17%, to $172.2 million, while earnings increased to $0.02 per share from $0.01 per share the previous year. With media companies, the focus is on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) due to large depreciation charges that dilute earnings. EBITDA, a rough measure of cash flow, increased 26% from the prior year. The indication is that cash flow trailed the increase in net income, which rose 74% to $4.8 million. Before looking at the continued deterioration of the balance sheet, these profitability measures from 1998 need to be reiterated. In 1998, Outdoor Systems generated a 5% ROE (Return on Equity) which does not bode well for future growth prospects. For a company with a highly leveraged capital structure it is more appropriate to look at return on total capital, which was a mere 1.6% for the year. Outdoor System did not provide a balance sheet with the earnings release, but I got reasonable guidance. Long term debt at the end of the quarter is approximately $1.81 billion, up from $1.68 billion in the preceding quarter. CFO Bill Beverage couldn't provide an exact equity figure, but without meaningful additions to common stock during the quarter and with no dividends, it is assumed that retained earnings increased by the amount of net income. Therefore, Outdoor Systems ended the quarter with a debt-to-equity ratio of 230%. Interest coverage is adequate, but could easily turn down with a hint of a slowdown in ad spending. Interest coverage remains flat compared to last year, with interest charges covered 2.3 times by EBITDA. But this does not leave much protection if, in fact, ad rates have peaked. There is no consensus on the outlook for ad rates, but based on historical patterns, the upside appears limited. The company also didn't provide a final goodwill figure. But assuming $27 million in acquisitions during the quarter, goodwill stands at about $600 million, or 21% of total assets. The company contends that some of the intangibles are related to trademarks. But even so, that is a lot of non-income generating assets, which helps to explain the weak profitability measures. Tobacco Ads Go Up in Smoke Outdoor Systems also has to grapple with the loss of tobacco-related revenue, due to outdoor tobacco advertising being banned. Tobacco-related advertising revenue accounted for almost 5% of 1998 sales, which will be reduced to zero this year. The company expects to make up for the loss with increased business from the Internet, consumer products, telecom and other industries. But the loss of a major revenue source is a big concern. The company also intends to continue pursuing international acquisitions, which will add additional macro risks. Outdoor Systems' cash level needs close monitoring. The CFO said the company had about $13 million in cash at the end of the quarter, or roughly $0.06 per share. Considering that the company will 'actively' continue its acquisition strategy, it will likely need a capital infusion. Interestingly, though, the sell side has turned very bullish on Outdoor Systems' outlook. All 10 analysts that follow Outdoor Systems have favorable ratings on it, including 'strong buys' from BT Alex Brown, Morgan Stanley, Prudential and Thomas Weisel Partners.