Analyst says media stocks are undervalued


Michael C. Alcamo of M.C. Alcamo & Co. Inc. notes that media stocks have a sharp drop in multiples over the past two years – 32% as a matter of fact – and suggests that it represents a general lack of confidence in broadcast. And the worst of it has hit companies that have interests in more media pots than broadcast. Alcamo says this lack of confidence may be misplaced.

Alcamo noted that, “…the sector is positioned for an exceptionally profitable year. The outlook for future quarters beyond 2012 is also excellent.”

Alcamo explained, “We evaluated both pureplay broadcasters as well as integrated media groups (media firms with a significant broadcasting division). When compared to the pureplay broadcasters, integrated media groups are apparently assessed a 19% valuation discount by investors.  Investors may be assessing this “valuation penalty” due to less optimistic views they hold regarding the outlook for print assets, particularly newspaper assets.”

He went on: “Lastly, we evaluated the stock price position of the fourteen media firms in the study, and compared these to the pacing for the S&P 500 index.  While the S&P 500 currently stands at 80% of the way through its 52-week range, broadcast stocks are moving more sluggishly.   Stocks of pureplay broadcasters are only 64% through their 52-week range.   Stocks of integrated media groups are moving with even greater torpor — on average, these stocks are only 59% of the way through their 52-week range.”

The six pureplay groups included Belo, Fisher, Gray, LIN, Nexstar and Sinclair.

The five integrated groups included Gannett, Journal, Meredith, Media General and E.W. Scripps.

Here’s the money shot from Alcamo: “In times of rising stock prices, broadcasting stocks generally significantly outpace the overall stock index. Therefore, should the current stock market rally continue, we believe the stocks of broadcasters are poised to advance significantly ahead of the index.”