Loop Capital cuts Gray Television target to $6, maintains Buy

On Monday, Loop Capital Markets revised its price target for Gray Television (NYSE:GTN) shares, lowering it to $6 from the previous $7, while still maintaining a Buy rating on the stock. The revision comes as GTN’s stock has declined 7.62% over the past week, currently trading at $3.76. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics. Analysts at Loop Capital made this adjustment following the company’s release of its fourth-quarter earnings, which surpassed expectations in core advertising and distribution revenue. Despite the positive performance, the first-quarter guidance was slightly below expectations.

Gray Television’s management has made significant strides in reducing its debt, retiring over $500 million last year. The company continues to focus on deleveraging efforts, with InvestingPro data showing a debt-to-equity ratio of 2.8 and EBITDA of $1.14 billion for the last twelve months. However, the current debt stands at 5.5 times cash flow, and analysts anticipate that leverage could rise by an additional 0.5 times in 2025, which is a non-election year. Additionally, preferred equity contributes another 0.5 times turn to the leverage.

The company’s portfolio of television stations is considered strong, predominantly featuring #1 and #2 stations in each market, positioning it favorably for potential local broadcasting deregulation. This strategic advantage may come into play if CEO Howell and his family, who hold a controlling interest of 46% of the voting power, opt to sell.

Gray Television has also invested substantially in real estate, with over $600 million allocated to the Atlanta Assembly complex, amounting to approximately $6 per share. The stock is currently trading at 6.7 times operating cash flow and 1.8 times free cash flow, based on Loop Capital’s estimates for the 2024/2025 cycle. InvestingPro analysis reveals the stock trades at an attractive price-to-book ratio of 0.17 and offers a significant dividend yield of 8.51%. These financial metrics reflect the firm’s assessment of Gray Television’s value and future cash generation potential. Get access to more comprehensive analysis and 7 additional ProTips about GTN through InvestingPro’s detailed research reports.

In other recent news, Gray Television reported its financial results for the fourth quarter of 2024, with earnings per share (EPS) surpassing estimates at $1.59, compared to the projected $1.17. However, the company’s revenue slightly missed expectations, coming in at $1.05 billion against an anticipated $1.06 billion. Gray Television’s focus on debt reduction was highlighted, with the company lowering its principal debt by $520 million in 2024. Political advertising played a significant role in driving revenue growth during this period.

Additionally, Wells Fargo (NYSE:WFC) upgraded Gray Television’s stock rating from Underweight to Equal Weight, setting a price target of $4.00. The analysts at Wells Fargo cited improvements in retransmission consent dynamics and a potentially favorable regulatory environment as factors influencing their decision. They also noted the company’s efforts in debt reduction as aligning more closely with industry-average multiples, reducing downside risk.

These developments reflect a mix of positive earnings performance and strategic financial management. Gray Television’s ongoing initiatives, including local sports expansion and potential regulatory changes, are seen as potential growth areas. The company’s management expressed optimism about future prospects, citing opportunities in mixed-use developments and broadcasting deregulation.

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