ADVO (AD) announced that its chief executive officer, Gary Mulloy, is leaving the company. AG Edwards cut its rating to hold from buy.
Analyst Michael Kupinski says the downgrade is due to management uncertainty tied to the resignation of its CEO, lack of clear succession plan, and likelihood that a transitional management team will be brought in. He notes several senior managers have resigned in recent years; the company is now conducting a search for a CEO and CFO.
Kupinski notes ADVO stock recently has been trading at 7.8 times enterprise value-to-estimated fiscal year 2005 (ending September) cash flow, or at the midpoint of its historic trading range of 5.1 times to 9.9 times EV-to-EBITDA. He says an improved economic and advertising environment would be necessary for the company to achieve its growth objectives.