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May 03, 2006

Clear Channel: Better Quarter Will Help Short-Term

Clear Channel (CCU) reported better than expected 1Q06 results led by a positive surprise in radio and continued strong growth in outdoor. CCU has easy comps in radio in 2006 and management seemed confident that current trends would hold. Consequently, I think the shares can trade moderately higher in the near-term and will continue to show good relative performance compared to other radio stocks. I don’t find the shares cheap versus the broader media universe and I remain concerned that radio is a market share loser in listening time and advertising revenue. Therefore, I don’t see much long-term upside for CCU.

The shares are responding well to the earnings because of better than expected results in radio. Revenues rose 5% in the quarter against expectations for 3% growth. Revenues were ahead of pacings announced during the quarter. EBITDA also exceeded expectations, growing 3% against expectations of 0-1% growth. The margin compression is the result of continued heavy investment in programming and station promotions. Management indicated trends for 2Q were similarly sold. I think investors will take away that the "Less Is More" initiative is having some positive impact and that growth is not solely the result of easy comparisons.

Outdoor continued its strong performance. Revenues were up just 3%, penalized by adverse currency movements but EBITDA rose a better than expected 14%. Outdoor remains the star of traditional media and there is no sign of a slowdown.

Short-term traders might consider getting long CCU but I don’t think there is more than 10% upside given the long-term challenges from the internet, satellite radio, and iPods.

Posted by Steve Birenberg at May 3, 2006 12:05 PM in CCU