Dallas-based Belo executives traveled to Wall Street last week to make the case that the company's stock price is significantly undervalued. Some analysts agree, although the company's half-day presentation to investors and analysts last Monday had little effect on the company's stock, which opened the week at $16.50 and closed at just under $16 on Wednesday.
"It's been a hard run for the last 12 to 18 months," Belo chairman Robert Decherd said of the television industry. Belo owns 18 TV stations covering 14% of the U.S., primarily in clusters in Texas, Arizona and the Northwest, where it also owns regional cable news networks. The company also owns newspapers, including The Dallas Morning News
The TV business will get a shot in the arm this year with big helpings of political and Olympics-related spending. But that raises questions about 2001 and whether those dollars can or will be replaced.
Decherd's answer: an unqualified yes. Belo, he said, is making plans now to surpass 2000's results in 2001, which means finding new money to replace $20 million to $25 million projected political spending and another $5 million or so in Olympics dollars.
"We're not conceding 2001 to anyone," he said. The Super Bowl on Belo's six CBS stations in 2001 will help, he noted. As will a newly created unit, Belo Marketing Solutions, which is dedicated to drumming up new business and to creating multimedia advertising packages for new and existing clients. The unit is projected to generate $6 million to $8 million in revenues next year.
Decherd called boosting the stock price the company's "number-one priority" and said the company will accomplish that by increasing sales.
Belo also plans to buy back $300 million or more of its own stock over the next four years. Stock-buyback programs are usually intended as a sign that a company strongly believes it can generate future revenue and profit growth.
"At current prices, Belo stock is by far and away the most compelling investment alternative available," Decherd said. And he is putting his own money where his mouth is. In the first quarter, he bought almost 750,000 shares of Belo stock at an average price of about $13 per share. That brought his stake in the company to $7.1 million shares, or 6%.
That kind of commitment by company insiders impresses Wall Street. "We feel this insider buying highlights the significant value in Belo," Merrill Lynch said in a report issued after the Belo presentation last week. The report said Belo's stock was trading at 7.3 times estimated 2000 earnings before interest, taxes, depreciation and amortization and 11.2 times this year's estimated earnings per share. "We regard those multiples as improperly low."
Decherd predicted that the company would generate $150 million in free cash flow in 2000 and $600 million in free cash flow over the next four years. He said the company will reinvest the money in interactive digital and Internet opportunities and buy back "at least" $300 million worth of its stock.
He also said the company is exploring a number of opportunities to form alliances involving Spanish-language television, particularly in its Arizona; Riverside, Calif.; and Texas media clusters, where Hispanic population levels are high. No specifics on what a Spanish-language venture might entail, but Decherd did rule out any attempt at a full-scale network to compete with Univision or any deal of that magnitude. More likely, sources said, are ventures to produce newscasts with Spanish-language stations, possibly Spanish-language editions of Belo's newspapers or some sort of new-media alliances.
The company has invested almost $100 million in Belo's Internet activities over the past year and will invest another $100 million over the next two to three years in Belo Interactive and related Internet opportunities, according to Decherd. The company's largest new-media investment to date is a $37.5 million investment in DigitalConvergence.com, an interactive service that connects viewers from programs and commercials on TV to Web sites on their computers. The company also has a $10 million stake in Geocast, a service that will distribute broadcast-quality digital TV signals to PCs.
The company projects that Belo's TV Group revenues will grow 8% to 9% in 2000, vs. less than 2% growth in 1999. TV group cash flow will grow 13% to 15%, vs. 1% last year. TV Group President Jack Sander said two recent TV acquisitions, KONG(TV) Seattle and KASW(TV) Phoenix, will record positive cash flow this year. Northwest Cable News will, too, for the first time in 2000. Sander also said Belo's stations have added about 120 sales reps over three years and will add more in 2001.