Street Takes Stock ofBroadcasting Resurgence - Broadcasting & Cable

Street Takes Stock ofBroadcasting Resurgence

Pace of M&A, retrans activity and political spending factor into bullishness on share values
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mmalone@nbmedia.com | @BCMikeMalone


Why This Matters
Publicly traded broadcast groups are doing the bulk of the acquiring these days.

As the third quarter of 2011 kicked off, Nexstar Broadcasting Group stock stood at $6.57—about what it costs to buy a McDonald’s value meal in Nexstar’s Irving, Texas, home. A year later, it was 11 bucks. And when the third quarter kicked off last week, Nexstar—fueled by $800 million in acquisitions and Wall Street’s suddenly favorable esteem for local television— approached a stunning $45.

Perry Sook, Nexstar president/CEO, said the spike is a combination of technical factors, such as Nexstar’s investor-friendly single-class stock structure and cleaner balance sheet, and more fundamental ones. “Retrans is real,” said Sook, “and we continue to grow core revenue, we continue to grow political revenue.”

Adoration of Analysts

The local broadcast sector has commanded the attention of an analyst corps whose numbers, and interest, had flagged in recent years. Through the first three quarters, publicly traded local TV companies’ combined stock values were up 191.6% over where they closed out 2012, according to BIA/Kelsey.

“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.

The mass consolidation, as groups fight for almighty scale, is a factor. A day before it announced a planned merger with Young Broadcasting, Media General’s stock stood at $7.30. It nearly doubled to $14.38 when the market closed Oct. 1. Gannett went from $20 a share before the announcement of its Belo acquisition to $26.83 on Oct. 1. (Belo, for its part, went from $10.73 to $13.70 during the period.)

Sinclair, the most acquisitive of all station groups, saw its stock stuck at around $7.50 in early October 2011, zooming to $33.89 when the market closed Oct. 1, 2013. Marci Ryvicker, senior analyst at Wells Fargo Securities, sees Sinclair in the $40-$42 range. “We think SBGI is undervalued relative to media peers and see the potential for significant accretion resulting from current and new M&A transactions,” she wrote in a recent report.

Hooked on Retrans

It’s hardly just M&A fueling broadcasters’ stock performance. Patrick said the largest factor is retransmission fees: SNL-Kagan is projecting that retrans revenue will surpass $6 billion by 2018. “No one knows how long it will last, but broadcasters have found retrans money to be very attractive,” he said.

Further stoking the bullish behavior is anticipation of the crackerjack political monies stations earn during election season. “Current stock prices reflect an expectation of rising profits in 2014. Analysts know that 2014 will be a very strong year for campaign spending, and all of that revenue goes right to [Earnings Before Interest, Taxes, Depreciation and Amortization],” said Michael Alcamo, president of investment banking firm M.C. Alcamo & Co. “The broadcasting industry has developed a reputation for being a great generator of cash.”

Sook was in Arizona last week, pitching Nexstar’s attributes to investors. They may not need much convincing; Ryvicker recently set Nexstar’s stock value at $49-$51. Sook won’t comment specifically on the estimate, but he is pleased to see the number climbing rapidly. “I don’t set the price—the market sets the price,” he said. “Beauty is in the eye of the beholder.”

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