On Monday (NASDAQ:MNDY), Benchmark analyst adjusted the stock price target for Gray Television (NYSE: NYSE:GTN), reducing it to $8.00 from the previous $11.00, while still recommending the stock as a Buy. This change follows a challenging Friday for Gray Television, as the company's shares saw a substantial decline, dropping over 25% during the trading day, and at one point, plummeting more than 30%.
The downward movement came in response to the company's third-quarter results, which were solid, but accompanied by a fourth-quarter core and political advertising revenue guidance that fell short of market expectations.
The dip in share value also coincided with a decrease in enthusiasm for deregulation, as the realization that congressional action would be required to remove the cap on station ownership began to set in. Despite a potentially more accommodating Federal Communications Commission ( FCC (BME:FCC)), which could enable better portfolio optimization or attract private equity interest to enhance valuation multiples, the immediate outlook for Gray Television was impacted.
The analyst noted that the underperformance in political advertising was not indicative of a broader shift away from broadcast media, speculating that most political ad dollars likely went to network-owned and operated stations in key markets such as Philadelphia. The result of these factors is a considerable reduction in Gray Television's projected EBITDA and free cash flow, at a time when reducing debt is of utmost importance for the company.
Even with these challenges, Benchmark sees potential upsides for Gray Television. There could be value to be realized from projects like Assembly Atlanta, and there is optimism that the company could exceed expectations with gross and net retransmission consent revenues in 2025. For the time being, Gray Television is expected to continue focusing on debt reduction, which is likely now trading at a greater discount due to the recent events.
In other recent news, Gray Media Group, Inc. reported robust growth in its Q3 2024 financial results, with a notable 18% rise in total revenue to $950 million and a shift from a net loss to a net income of $83 million. The company's adjusted EBITDA surged by 61% to $338 million, and core advertising revenue experienced a slight increase.
Despite certain challenges, Gray Media is implementing cost-reduction strategies projected to reduce operating expenses by $60 million annually and is capitalizing on new media rights deals, such as the one secured with the New Orleans Pelicans, to enhance its broadcasting portfolio.
The company plans to reduce its total net debt by approximately $500 million in 2024 and is preparing for a deregulatory environment from the FCC which could facilitate M&A activities. These are part of the recent developments that Gray Media is undergoing to strengthen its financial standing and competitive edge in the broadcasting sector.
However, it's important to note that political ad revenue was slightly below expectations, particularly in Senate races, and Q3 showed weakness in the auto and communications sectors. Furthermore, core advertising is projected to decline by 10% in Q4 due to political crowding and the transition of SEC football to CBS. Despite these setbacks, Gray Media is confident in its operational strategies and is prepared to adapt to the evolving media landscape.
InvestingPro Insights
Despite the recent challenges faced by Gray Television, as highlighted in the article, InvestingPro data reveals some interesting aspects of the company's financial position. The stock's P/E ratio of 2.8 and Price to Book ratio of 0.21 suggest that GTN may be undervalued relative to its earnings and book value. This aligns with one of the InvestingPro Tips, which notes that the company is "Trading at a low earnings multiple."
The company's dividend yield stands at a substantial 7.48%, supporting another InvestingPro Tip that GTN "Pays a significant dividend to shareholders." This high yield could be attractive to income-focused investors, especially in light of the recent share price decline.
InvestingPro Tips also indicate that GTN's "Net income is expected to grow this year" and that "Analysts predict the company will be profitable this year." These projections offer a glimmer of optimism amidst the current challenges, potentially supporting Benchmark's maintained Buy recommendation.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Gray Television, providing a deeper understanding of the company's financial health and market position.
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