Jho Low on Infinity Broadcasting

The Wharton  Journal of 9th of April 2001 carried an analysis of Baxter International Inc. by Taek Jho Low, then an undergraduate student at the Wharton School of Business.

The analysis by Taek Jho Low follows:

To Infinity and Beyond

Company Description

Infinity Broadcasting represents a large-cap, debt-free, pure play on the high growth “out-of-home” media sector in the nation’s largest markets. Infinity Broadcasting (INF) will own a total of 185 radio stations across 43 markets, displaying faces in over than 150 markets in the U.S., Canada, and Mexico, including the fiftiest largest domestic markets. CBS Corporation owns 64% of shares outstanding.

 

Investment Thesis

The  large number of positive features of this company, to name a few, are:

• INF possesses a highly talented, shareholder-oriented senior management team, led by Mel Karmazin who serves as Chairman and CEO.

• INF boasts an outstanding asset portfolio ranking second in the industry in terms of total revenue. Its stations have the highest margins among publicly traded operators in this industry.

• INF is an industry leader in radio/outdoor. These are long-term, predictable growth businesses with significant barriers to entry, limited technology risk, controllable, fixed operating costs, high earnings before interest, taxes, depreciation, and amortization (EBITDA) margins, minimal capex requirements, and extraordinary free cash flow (FCF) generation.

• The company should grow FCF/share at a rate of 15% to 20% over the next 5 years.

• INF should benefit from the CBS/Viacom (VIAB) relationship. This includes cross-selling and cross-promotional synergies that it will enjoy inside the new CBS/Viacom.

• INF is clearly the fastest-growing asset in the new CBS/Viacom. Viacom/CBS has completed the buy out of the remaining shares of INF.

• INF stock currently trades at about 37 times 2000 free cash flow of $0.92 and 31 times my 2001 estimate of $1.11. These estimates leave room for upward revision. My 12-month price target of $42 assumes roughly a 38x multiple on year 2001 estimated FCF/share of $1.11.

Risks

Potential conflicts of interest exist with CBS/Viacom. Infinity Broadcasting Chairman and CEO, Mel Karmazin, also serves as president and COO of the new Viacom/CBS. Also, Infinity’s largest markets are significantly benefiting from dot-com and national advertising, which would likely see a significant slowdown during softer economic periods.