With Wall Street tanking, stock valuations for companies that own TV stations have tumbled below depths not seen since the early 1990s.
Today there's a double whammy. First, advertising is weak, though to some degree that problem will eventually pass. But TV broadcasters are saddled with competition from cable, and growing competition from digital media such as Websites and portable video devices that are permanently changing the media landscape and spooking investors.
Trading below their mid-1990 levels are Gray Television, at less than $2.50 a share (giving the whole company a meager $112 million market capitalization) and Sinclair Broadcast at less than $8 a share (a $650 million market cap for a company with 55 TV stations reaching 21.6% of U.S. TV households).
In comparison, the S&P 500, which represents the broad stock market, is up 272% since 1990, and 151% since the mid-'90s. A new report from BMO Capital Markets notes that broadcast stocks have fallen 33% since Jan. 1, more than double the 13% decline in the S&P 500. Sinclair is trading at about half of its price of a year ago, when it was $15 a share.
“You'd think we'd get more credit [from Wall Street] than we do,” says Sinclair CFO David Amy, who argues that besides earnings, his company delivers an 80 cent-per-share cash dividend annually to its shareholders. “It doesn't make sense given what we've accomplished. I don't know what more we can do.” Broadcasting stocks across the board are now trading at lower prices than in the panic after Sept. 11. Cable TV stocks have been less punished, and even staged a spring rally.
The TV broadcasting slump is surprising given the cyclical boost from presidential election/summer Olympics advertising. But Wall Street is focused on bad news. General Motors announced July 15 it plans further advertising cuts, and the automotive category accounts for 20% or more of ad revenue at TV stations. It's typically the biggest category at the station level.
BMO Capital Markets issued a comprehensive broadcasting sector report July 7 pushing out to 2010 its estimate for any improvement in broadcast advertising, from mid-2009 previously. BMO is also keeping its “underperform” rating for the sector.
Some investors believe Wall Street's bearishness is overblown. Broadcasters still deliver media's largest audience concentrations to advertisers. Indeed, one fallout is share prices are falling so low that they'll be a catalyst to take public broadcasting companies private by buyers who believe in the medium's longer-term prospects.
Fisher Communications rejected an unsolicited buyout bid in April, which was pegged to its weak stock price.
Veteran media analyst Hal Vogel takes a stand between the bears and the bulls. “There will probably be a point in a half-year or year from now when it'll look like there's a bounce and it appears the [TV broadcasting] sector has hit the bottom,” Vogel says.
“That's when year-to-year earnings comparisons will get easier, and this will make investors more enthusiastic,” he says. “But I don't think that the sector will return to what it used to be,” as emerging digital media become entrenched competitors for audiences and advertising.