Feeling Fortified

Hot off a successful IPO, radio group Citadel Broadcasting Corp. is just catching fire as it capitalizes on a new management team and an acquisition strategy that has it poised to take part in the consolidation of the midlevel station market, according to a series of new analyst reports.

Analyst coverage that launched last week in the wake of the initial public offering, which raised $452 million for the Las Vegas-based company, generally forecasts further share gains, even though the stock is already trading at a premium, by some measures.

Since the IPO on Aug. 1, Citadel shares have traded up 11% to about $21.

Merrill Lynch, for one, last week set a buy rating and a price target of $27 for the stock. And Goldman Sachs expects shares to outperform the radio group overall, assuming that the radio advertising market performs as well as expected in 2004.

It was not the first public offering for Citadel, which owns 144 FM and 63 AM stations. Forstmann Little & Co. took the company private in 2001 for $2 billion in cash. A new management team led by Farid Suleman, former CEO of Viacom Inc.'s Infinity Broadcasting unit, is credited with much of the company's recent improvement.

Since Suleman took over in March 2002, the company has embarked on a turnaround of its assets, and its revenue and cash flow have grown faster than the industry, according to Goldman analyst Richard Rosenstein.

"The company has become a magnet for management talent from around the industry," Rosenstein says.

Organic growth is supplemented by selective acquisitions, with $200 million in announced or closed deals so far in 2003, including the $133 million pending purchase of Wilks Broadcasting's 11 stations, Merrill analyst Jessica Reif Cohen says.

Since consolidation in large radio markets has largely been completed by sector giants Clear Channel Communications and Infinity, attention is now focused on mid-sized markets, which still offer significant deal opportunities. Citadel's target appears to be the top 30-75 markets, a playing field that is wide open.

The evolving second tier of station owners, including Cox Radio, Entercom Communications, Cumulus Media and Emmis Communications, have all been aggressive buyers. And Citadel is seen as having enough financial flexibility to be a player here as well.

"Improving operating performance and a successful IPO have dramatically revitalized Citadel's balance sheet," Bear Stearns analyst Victor Miller says. "This will position the company to actively participate in the industry's further consolidation."