If You Listened to This Analyst's Report, You'd Be Wealthy - Broadcasting & Cable

If You Listened to This Analyst's Report, You'd Be Wealthy

A local media investment banker said a few years ago that broadcast was well undervalued. He may have undervalued just how undervalued it was.
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“If you’d invested $100,000 in local television two years ago, you’d be very wealthy right now,” said Larry Patrick, managing partner of station brokerage Patrick Communications.

I heard this in the fall, and it's been bouncing around in my head since then.

Indeed, local broadcast stocks have taken off in the past few years, which made me think of a report from Michael Alcamo, president of media investment bank M.C. Alcamo & Co., that came out in late January 2011 and presaged the explosion.

Alcamo argued at the time that the station group sector was around 15% undervalued at the close of 2010. Six pure-play broadcasters in his study--Belo (remember Belo?), Fisher (remember Fisher?) and Gray TV, among others--were valued at an average multiple of 8.7 x trailing 12-months EBITDA – down 20% from a year before, and down 10% from three months before. Multiples at nine "integrated" media firms with TV stations traded at 6.1 x, down nearly 25% from 8.0 x the previous year.

“Investors remain cautious about broadcast–despite rising profitability, improved credit profiles, a good outlook for 2011, an exceptional outlook for 2012, and audience trends all pointed in the right direction," said Alcamo at the time.

Alcamo said the 2012 political season would get stock prices headed in the right direction, and it certainly did. Two years ago, Nexstar was trading at around $8.50. Today, it's just north of $47. Sinclair was around $12.50 two years ago and is over $30 today. Gannett, one of those "integrated" companies in Alcamo's study, sits at $26.82 a share as I write this--almost double the $15 bucks it was valued at two years ago. So, if you'd bought chunks of their stock two years ago, you'd be living large these days.

Concluded Alcamo in his early 2011 report [note that "beta" is a statistical measure of the volatility of a stock]:

"Given the strong revenue recovery and improving cost situation at all major broadcasters, and the high beta of broadcasters, it seems incongruous that share prices have lagged behind the broader index,” he said. “In view of technical advances in master control, rising levels of retransmission revenue, and a resilient advertiser proposition from the high definition consumer experience, we believe that broadcasters will increasingly be seen as strong cash-producing firms."

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