PENN Points to Television
PENN Points to Television
April 27, 2011
Looking for a way to benefit from an extremely contentious election season? You do not have to look any further than your television set. Eric Green, CFA, Director of Research at PENN Capital Management, recommends that investors focus on local television station groups to benefit from the anticipated onslaught of upcoming political advertisements. Green says, “I expect political advertising to be the highest it has ever been this election season.”
Recently, the government passed a law that allows corporations to make political donations without disclosing their identity. These donations are often used for television advertising, considering television is still the preferred method of publicity for politicians. The top 25 programs are consistently on network television and the number of household’s watching network television has hardly budged over the last 15 years.
Some of Eric’s favorite ideas include Sinclair Broadcasting (SBGI), Belo (BLC) and Nexstar (NXST). “Outsized political advertising on television is just one of the reasons I like this group,” says Green. “This group is still in the recovery mode from the advertising slump during the recession. There is still significant upside in their numbers as the economic recovery continues.” Eric goes on to say, “In my opinion, these stocks have little coverage on Wall Street and are undiscovered due to the tendency of Wall Street analysts to only cover the largest market cap media companies. Valuations are at historic lows with forward EBITDA ratios under 8x and P/E ratios under 10. These companies traded at high teens EBITDA and p/e multiples in the late 1990’s given the potential for retransmission fees as well as their ownership of valuable spectrum. The broadcasters are now receiving retransmission fees and they still own the valuable spectrum. This spectrum could be sold, leased or used for applications like mobile television.”
Green also sees M&A activity very likely in this sector given the high free cash characteristics, low valuations and extremely attractive rates in the high yield market. “The bonds of most of the broadcasters trade at record high valuations while the stocks are still significantly below their historic valuations. These companies are generating significant free cash and should be shareholder friendly over the next few years. In fact, Sinclair and Belo recently announced large increases in their dividend.”
PENN Capital Management Company, Inc., founded in 1987, is an independent, nationally recognized, 100% employee owned investment management firm located in Philadelphia, PA. PENN maintains a fully integrated credit and equity research process and emphasizes Complete Capital Structure Analysis® when analyzing investment opportunities. PENN has over $6 billion in assets under management and specializes in high yield fixed income and micro-to-mid capitalization equity portfolios for institutions and individuals.
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All inquiries can be sent to Candace A Brennan - cbrennan@penncapital.com
