The company of the week this week is Westwood One, Inc. (WON), the radio communications company that provides News, Sports, Traffic, and other programming to numerous affiliates across the nation. As we did last week, we will be looking reviewing the company using Warren Buffett’s approach for the Business & Management Review. We will also use Benjamin Graham’s overall philosophies to guide our Financial & Value Review.
Business & Management Review
1. Is the business simple and understandable?
The company sells advertising space on its radio station affiliates across the nation in exchange for the programming it provides to those affiliates. In the past this has been a simple business and though the landscape of the industry is changing, the overall business plan remains the same.
2. Does the business have a consistent operating history?
The company was founded in the 1970s and has grown over the last 30 years to be one of the largest radio networks. Financially, the company has provided a positive net income for over 10 straight years, has grown its earnings per share over the last 10 years, and recently began paying a dividend.
3. Does the business have favorable long-term prospects?
The last couple of years the company has faced an increase in competition with the advent of satellite radio and mp3 players. The industry has changed, and so must the company’s approach. During my research on the company, I discovered a past article from The Wall Street Journal. The article mentions the problems the company is facing, and highlights the approach new President and CEO Peter Kosann is taking. According to the article, “Mr. Kosann has cut around 100 jobs, recruited new executives and introduced initiatives to get Westwood onto new platforms, such as iPods and mobile phones. But his biggest plan is simply trying to improve the programming lineup.” We believe Mr. Kosann is right on target with his plan. Technology has improved – the company must adapt itself to the changes, but first and foremost must ensure its programming is the best it can be. Westwood One appears to be setting itself in position to move forward and resume its growth.
4. Is management rational?
As mentioned in the previous point, it appears that management is on the right track and is rational in realizing that its previous approach to the business will not entirely fly in the future. With the significant changes in radio and music technology, the management must rethink its strategy. The board of directors was wise to put a young sales executive at the helm of the company – an action that instantly injects youth into the company.
5. Is management candid with its shareholders?
Westwood One’s investor relations page on their website needs to be radically improved. It only provides annual and quarterly reports, corporate governance information, and press releases. In addition, the company profile page is very basic and does not provide any information that is not available on all financial resource websites. However, the url of the investor relations page is: http://www.westwoodone.com/pg/jsp/aboutus/aboutus.jsp
6. Does management resist the institutional imperative?
As the management of the company has only recently been hired, it is difficult to ascertain whether they will resist the institutional imperative. However, we are optimistic that the management will resist blandly following the methods of fellow executives and be innovative into the future.
Financial and Value Review
Upon our review, we find Westwood One to be suitable for the enterprising investor following Benjamin Graham’s value investing strategy, but not suitable for the defensive investor. The company is too small for the defensive investor, does not have a significant dividend history, and does not have a current ratio high enough for the defensive investor. However, we find the company to have a PE ratio of 7.66, and a price to book ratio of 0.88.
We believe the company has potential to reach $16/share in the next few years.
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