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Sterling
Small Cap Review for July 11th, 2008
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Position
Statement: In our Small Cap Review newsletter we attempt to identify small and micro cap companies that we feel are undervalued and have a good chance of
moving higher. When we write about a company, please do not assume that it is a buy recommendation. We will have stocks in the “watch” category, the “buy” category, the “hold" category, the “sell” category and the “you have got to be kidding” category… this is reserved for companies that we have identified as having a highly unlikely story, or, has shown a propensity to stretch the truth to a state hitherto unknown to mankind. The Sterling Small Cap Review is distributed via. an "opt-in" email distribution and through our website www.sterlinginvestments.com |
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Today’s Comments: This week, we look at an extremely undervalued company that have fallen below book value. We are initiating coverage on SALM with a BUY rating.
In our previous issue, we initiated Gulf Resources, GFRE (OTC BB) with a “watch”. Since that time, the stock has weakened to our desired entry point, as we predicted and we are now placing a “BUY” rating on the stock based on yesterday's close of $1.11/share. This represents just over 5x expected 2008 earnings.
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Recommendation: Buy
Salem Communications (SALM )
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| Company: Salem Communications |
Symbol: 'SALM' |
Closing
Price: $1.53 |
| Web
Site: www.salemcommunications.com |
YH: $12.07 YL: $1.20 |
Forecasted
EPS: $0.29 |
| Shares
Outstanding: 23.6 Million |
EPS: $0.43 P/E: 3.55 |
Market
Cap.: $36 Million |
| Dividend: N/A |
Yield: N/A |
Average
Daily Trading Volume: 89,000
Shares |
Company
Description: Salem Communications Corporation, through its subsidiaries, operates as a commercial radio broadcasting company in the United States. It owns and operates radio stations in metropolitan markets. The company operates radio business in formats, including Christian teaching and talk, contemporary Christian music, conservative news talk, and Spanish language Christian teaching and talk. It also owns and operates a national radio network that syndicates music, news, and talk to approximately 2000 affiliated radio stations. In addition, the company provides online conservative content and Christian content and streaming, as well as publishes Christian magazines and books targeting Christian audience. Further, it contracts with individual radio stations to sell air time to national advertisers. As of December 31, 2007, the company owned and operated 96 radio stations. Salem Communications Corporation was founded in 1986 and is headquartered in Camarillo, California. |
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Our
Analysis: Salem Communications owns and operates approximately 96 radio business in formats, including Christian teaching and talk, contemporary Christian music, conservative news talk, and Spanish language Christian teaching and talk. It also owns and operates a national radio network that syndicates music, news, and talk to approximately 2000 affiliated radio stations, and provides online conservative content and Christian content and streaming, as well as publishes Christian magazines and books targeting Christian audiences.
The Quick Take: SALM's revenues and profits are down Q to Q, and that trend is not expected to change in the next couple of quarters. That being said, the company is only trading 1.2 x TRAILING 12 MONTH'S CASH FLOW, and we believe that the market has punished SALM beyond what is deserved. If we believe that SALM's cash flow for the next 12 months will be half of what the previous 12 months were, and assign the normal industry multiple for radio stations of 7-10, we think that in a liquidation, which is not expected, SALM should fetch $6.00- $8.00.
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Copyright
1992-2008 Sterling Investment Services, Inc.
P.O. Box 191767, Atlanta, GA. 31119-1767
Fax 404-816-8830
404-816-8240 |
Disclaimer:
The Sterling Investments series of newsletters is produced by Sterling
Investment Services, Inc. All information
used in the production has been obtained
from sources believed to be reliable and
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does not warrant or assume any liability
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Investment Services may hold positions
in the securities recommended or may be
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mentioned within this report. |
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