Wall Street Analysts Downgrade Arbitron Stock

A pair of Wall Street analysts on Wednesday (Nov. 19) downgraded Arbitron stock following the announcement from The Nielsen Company Tuesday (Nov. 18) it would measure audiences for Cumulus in 50 small markets. Clear Channel also signed a contract to have its stations in 17 of those markets measured. Still, the analysts see Arbitron as a good investment.

In a note to clients on Wednesday, Jim Boyle, an analyst with CL King & Associates said that Arbitron would “play expensive defense” and “may be shooting downhill,” but he acknowledged that “more uncertainty denting [Arbitron’s] dominance causes us to downgrade to ‘accumulate.'” Boyle has been big on Arbitron, particularly since its launch of the more lucrative PPM service in the top 50 markets. Until Wednesday, he had a “strong buy” rating on Arbitron.

JP Morgan’s Alexia Quadrani switched her “overweight” rating to “neutral.” “We still believe this is a strong earnings growth story for 2009, which is increasingly rare within our media universe. However, new risks will likely limit upside in the intermediate term, pushing us to the sidelines,” said Quadrani, who added that she sees greater risk to the company down the road. “Arbitron is currently in diary negotiations with Clear Channel for a ‘significant’ number of diary markets. Clear Channel accounted for 19 percent of Arbitron’s revenue in 2007. We see a risk that CCU and others could sign on with Nielsen in additional markets.”

The risk that Arbitron will lose business to Nielsen appears limited to mid-size and small markets, Boyle said. “Arbitron has signed 13 of the top 15 radio groups to long-term PPM contracts, often of four to seven years’ duration. In past good times, radio did not care to pay for two research firms and two sets of numbers from which ad agencies could cagily buy off the lower rating.”

Boyle added that if “Nielsen wants in, it would be better served to buy all of Arbitron than to try to pitch clients two-by-two or market-by-market. But there are no guarantees.” He noted that Nielsen’s parent company went private two years ago, “so one might wonder about its new owners’ investment horizon and appetite for potentially a lower-margin price war or similar pricing skirmish that causes attrition spread over years against an entrenched incumbent, even if unpopular with many clients.”

It was a tough day on Wall Street for Arbitron. More than 1.5 million shares traded hands Wednesday, far more than the 30-day average of 370,000 shares traded, and the issue lost more than 24 percent of its value, off $5.27 a share to close at $16.42.

The Nielsen Co. is the parent company to Radio and Records and Mediaweek.