On Monday (NASDAQ:MNDY), Loop Capital has adjusted its financial outlook for Gray Television (NYSE:NYSE:GTN), revising the price target downward to $7.00 from the previous $8.00, while still endorsing the stock with a Buy rating.
The adjustment follows a reassessment of the company's revenue and EBITDA projections for 2024, which were reduced by $177 million and $158 million, amounting to cuts of 5% and 13% respectively. The revisions are attributed primarily to a less robust broadcast TV political advertising climate than initially expected.
The analyst at Loop Capital highlighted that Gray Television's management is actively engaging in cost reduction measures and purchasing debt at a discount in the open market. However, despite these efforts, the company's leverage is projected to be higher, with an estimate of 5.5-6x levered as it exits the election year.
Gray Television's third-quarter revenue hit the low end of its guidance, and political revenue is anticipated to fall short of expectations by $130 million. Additionally, the fourth-quarter revenue forecast has been impacted by the hurricanes and the transition of SEC football broadcasting rights from CBS to ABC.
Gray Television's core advertising revenue showed a modest increase of 1%, but a decline of 11% is projected, partly due to the political advertising overshadowing regular spots and the interruption of advertising during hurricane events. Despite these challenges, the firm has invested approximately $600 million in the Atlanta Assembly real estate complex, equating to roughly $6 per share.
The stock's valuation currently stands at 6.5 times operating cash flow and 1.4 times free cash flow, based on Loop Capital's estimates for the 2023/2024 cycle. In light of these figures and the disappointing political advertising revenue for both Gray Television and the industry at large, Loop Capital is holding onto its Buy rating but has reduced the price target to reflect the revised financial expectations.
In other recent news, Gray Television experienced a significant adjustment in its price target by Benchmark analyst, reducing it to $8.00 from the previous $11.00, while maintaining a Buy recommendation. This comes on the heels of the company's third-quarter results, which, although solid, were coupled with a fourth-quarter core and political advertising revenue guidance that fell short of market expectations. Gray Television is now expected to focus on debt reduction.
Despite the challenges, Benchmark sees potential upsides for Gray Television, such as the possibility of exceeding expectations with gross and net retransmission consent revenues in 2025. Additionally, Gray Media Group, Inc. reported a robust 18% rise in total revenue to $950 million in its Q3 2024 financial results, transitioning from a net loss to a net income of $83 million.
The company's adjusted EBITDA surged by 61% to $338 million, with core advertising revenue experiencing a slight increase. Gray Media is implementing cost-reduction strategies projected to reduce operating expenses by $60 million annually and capitalizing on new media rights deals to strengthen its broadcasting portfolio.
Furthermore, Gray Media plans to reduce its total net debt by approximately $500 million in 2024 and is preparing for a deregulatory environment from the FCC (BME:FCC) which could facilitate merger and acquisition activities. Despite setbacks such as a projected decline in Q4 core advertising by 10% due to political crowding and the transition of SEC football to CBS, Gray Media remains confident in its operational strategies.
InvestingPro Insights
Gray Television's current financial metrics and market performance provide additional context to Loop Capital's analysis. According to InvestingPro data, the company's stock is trading at a remarkably low Price to Book ratio of 0.21 and a P/E ratio of 2.8, suggesting it may be undervalued relative to its assets and earnings. This aligns with Loop Capital's decision to maintain a Buy rating despite lowering the price target.
InvestingPro Tips highlight that Gray Television pays a significant dividend to shareholders, with a current dividend yield of 7.48%. This could be attractive to income-focused investors, especially considering the company's profitability over the last twelve months. However, it's worth noting that the stock has taken a significant hit, with a 25.95% decline in the past week and a 35.51% drop over the last six months, reflecting the challenges outlined in the article.
The company's revenue for the last twelve months stands at $3,463 million, with an EBITDA of $946 million. While these figures are substantial, the EBITDA growth rate of -9.73% over the same period underscores the headwinds facing the company, particularly in political advertising revenue as mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Gray Television, providing a deeper understanding of the company's financial health and market position.
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