Arbitron (ARB ), a media research outfit that compiles the radio ratings the same way ACNielsen monitors TV watchers, has some shareholders interested in its cash stash. Arbitron has no debt and enjoys robust cash flow. So these investors want the company to borrow enough money to buy back 20% of its shares. Not that the stock is on the skids: It shot from 43 in January to 53.34 on July 11. "Arbitron isn't fully exploiting its cash," says Mark Boyar of Boyar Asset Management, which owns shares. This year's free cash flow of $82 million will jump to nearly $200 million by 2012, he figures. By buying back shares, Arbitron could enhance its stock, which he values at 70 to 75. Arbitron's ample cash, he adds, may attract private equity suitors. Part of Arbitron's bright future lies in its Portable People Meter, the size of a cell phone, that keeps track of which radio or TV program is on. Clear Channel Communications (CCU ), which kicked in 19% of Arbitron's revenues last year, has signed up to use Arbitron's radio ratings in 46 markets through 2010. By then, the meter will have replaced paper record-keeping. Alexia Quadrani of Bear Stearns (BSC ) (Arbitron was a client) who rates it "outperform," figures the device will let Arbitron hike prices by 60%-65%. Quadrani sees earnings of $1.45 a share in 2007, $1.83 in 2008, and $2.42 in 2009.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial