IHeartMedia, Lamar drop as Morgan Stanley downgrades on ad recession risk
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IHeartMedia (NASDAQ:IHRT) is outstripping the market decline today, sinking 9.7% as Morgan Stanley cuts its rating to Underweight, and Lamar Advertising (NASDAQ:LAMR) is 4.2% lower amid a cut to Equal Weight as the firm trims expectations for advertising growth in 2023.
Trends are currently robust across out-of-home advertising, the agencies, and audio, analyst Benjamin Swinburne said. But "we see rising risk that ad budget growth will slow and perhaps dramatically in â23."
The firm's bear case now reflects a mild recession, he wrote, while the bull cases have gotten trimmed.
Risks in a downturn are heaviest for business that are levered, he said; in the advertising space, that includes iHeartMedia (IHRT) and Clear Channel Outdoor Holdings (CCO). Morgan Stanley is also Underweight on Omnicom (OMC), facing high exposure to Euro markets and having outperformed "nicely" year-to-date. Clear Channel is -6.2% Friday, while Omnicom is -3.8%.
Lamar's downgrade is taking into account a growing risk that ad budget growth and marketing spend will slow down in 2023 - and given its billboard business has high incremental operating margins, "slower advertising growth flows through to EBITDA and AFFO (adjusted funds from operations)."
Most attractive is Outfront Media (OUT), given some relative underperformance and the chance of growing in 2023 even in a mild recession. Swinburne is Equal Weight on Outfront; the stock is -5.3% Friday.
Meanwhile, he reiterated an Underweight rating on Sirius XM Holdings (SIRI), signaling caution over exposure through its Pandora segment.
He's slashed his iHeartMedia (IHRT) price target to $11 from $25, and cut Lamar to $103 from $135.