Marci Ryvicker declares herself a bull on TV stocks


Wells Fargo Securities analyst has officially upgraded the television sector to “overweight” (buy) from “market weight” (neutral). She also upgraded Sinclair Broadcast Group to “outperform” ahead of the company’s Q4 earnings report on Wednesday morning (2/9).

“We are incrementally bullish on the pace of auto ad sales (and hence auto advertising) and see potential upside in many other categories (i.e. telecom, retail, restaurants, services, etc.) as the local economy improves. We also believe that the broadcast TV sector is healthier today than it was prior to the recession as network affiliation agreements are being renewed and retransmission consent has not only become a standard but continues to show robust growth. Further, we believe that the most contentious retransmission consent negotiations – such as between CVC and NWS – and the ‘cord cutting’ phenomenon only highlight the importance of broadcast TV to this society. (Those who are cord cutting are putting antennas on their homes to capture the major broadcast nets and using hulu, etc. to watch cable). Lastly, pent up demand for M&A is likely to drive significant multiple expansion, as we have seen stations trade for 8-9x in the radio space (and we find broadcast TV much healthier than radio given multiple revenue streams from retrans, digital and eventually mobile). Currently, our broadcast television stocks are trading at 6.5x blended EBITDA, and we think there is room for 1 if not 2 turns of multiple expansion,” Ryvicker said in a note to clients.

“The two names we want to own among our broadcast TV coverage are CBS and SBGI [Sinclair] for their relative fundamental outperformance, their healthy balance sheet and their shareholder-friendly capital allocation strategies,” the analyst added.

Sinclair is looking so good, in fact, that Ryvicker thinks the company might want to resume handing cash back to its shareholders. It was two years ago that the company suspended its dividend payments due to the recession. Based on Sinclair’s reworked balance sheet, the analyst figures the company “has room to initiate a solid dividend (think 5% yield) which would attract deep value investors.” Ryvicker did not, however, offer a timetable for when the dividend might be resumed.