Benchmark reaffirms Buy rating on Gray Television amid challenges

On Monday, Benchmark reaffirmed its Buy rating on Gray Television (NYSE:GTN) with a steady price target of $11.00.

"To say it has been a tough year for Gray would probably be a bit of an understatement. Timing, headlines, multiple refinancing efforts, guidance revisions, you name it, it happened," said the analysts.

Despite these hurdles, the company's management has kept a low profile, particularly regarding political advertising revenue expectations.

The assessment by Benchmark indicates that if current trends hold and some advertising dollars are deferred to the fourth quarter, Gray Television's performance could align with initial expectations. This outlook is despite the company's earlier projections being more optimistic, based on their strong performance in 2020. The analyst noted that while political revenue exceeding $600 million might seem successful, it is difficult to overlook the fact that some of Gray's peers have reported unexpectedly higher results.

Benchmark has adjusted its political revenue forecast for Gray Television upwards, albeit with only a slight change to its core projections for the current year. This conservative stance comes after management lowered expectations on the previous earnings call. The firm has also reduced its 2025 core forecast for Gray by 1.5%, reflecting potential ongoing weakness in the broader advertising market.

The analysis suggests that if the company can resolve certain timing issues with retransmission consent agreements and if the new CFO, Jeff Gignac, can optimize financials, there may be a more favorable outlook post-political advertising season and leading up to the fourth-quarter report. Benchmark's position indicates a cautious but potentially improving perspective on Gray Television's financial prospects.

In other recent news, Gray Media Group Inc. announced the retirement of two of its veteran broadcasters, Laura Long and Rick Dean, signaling a shift in the company's leadership. The company also announced comprehensive coverage plans for the 2024 Democratic National Convention, aiming to deliver substantial coverage with a unique local perspective across its markets.

On the financial front, Gray Media reported a 2% rise in revenue, totaling $826 million in the second quarter of 2024. Net income reached $22 million, with adjusted EBITDA reported at $225 million. Despite core advertising revenue falling slightly short of expectations, political advertising surged by 62%, reaching $47 million.

InvestingPro Insights

Gray Television's financial landscape presents a mixed picture, as reflected in the latest InvestingPro data. The company's Price to Book ratio of 0.27 suggests that it may be undervalued relative to its assets, aligning with Benchmark's maintained Buy rating. This low valuation metric is one of the key InvestingPro Tips, indicating potential upside for investors.

Despite the challenges mentioned in the article, Gray Television maintains a significant dividend yield of 5.71%, which could be attractive to income-focused investors. This is particularly noteworthy given the company's ability to pay dividends while navigating a difficult year, as highlighted by another InvestingPro Tip stating that the company pays a significant dividend to shareholders.

The company's revenue for the last twelve months stands at $3,316 million, with a gross profit margin of 27.99%. While these figures provide context to Gray's financial performance, they also underscore the importance of political advertising revenue in the company's overall financial health, as discussed in the article.

InvestingPro offers additional insights, with 8 more tips available for Gray Television. These tips could provide further context to the company's financial position and future prospects, especially as it navigates the current challenging environment and looks towards potential improvements in the fourth quarter.

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