Wells Fargo Securities media analyst Steven Cahall resumed coverage of Gray Television, giving the broadcaster a positive "overweight" rating.
Cahall, in a note Monday, set a target price of $26 per share for Gray, which closed last week at $20.16.
After a series of acquisitions, Gray is now a large-scale broadcast player, Cahall said.
“We’re bullish on its ability to generate strong free cash flow and deliver relatively quickly, driven by core ads, the midterm elections and net retrans,” he said. “We see scope for GTN to get to more than $30 if deleveraging out performs.”
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As a bigger group, Cahall expects Gray to be able to increase retransmission-consent revenues by 8% annually. He sees Gray getting about $4.43 per subscriber for its Big Four affiliated stations, compared to the $5.85 for Nexstar Media Group stations, $4.40 for Sinclair Broadcast Group, $5.35 for Tegna and $2.92 for E.W. Scripps.
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Cahall sees core advertising revenue down 1% in 2022 because of political crowd-out and political ad revenue of $533 million, slightly ahead of guidance. He puts Gray’s political ad revenue at $16 per household, the highest in broadcast.
In his note, Cahall compares Gray following its acquisition of the Quincy and Meredith stations to Nexstar after buying Tribune Broadcasting. "We see the same playbook in owning Gray," he said "We estimated $600 million in average calendar year 22/23 free cash flow (with upside) that will primarily accrue to equity holders on a currency $2 billion market cap."
Cord-cutting remains a risk to the industry, but that’s baked into valuations, Cahall said, noting that Gray’s third-quarter subscribers were up modestly year over year. ■
