In my eyes, one of the most surprising stock surges of 2013 has been that of Sinclair Broadcast Group, Inc. (NASDAQ:SBGI). I had recommended this company for its substantial dividend yield in earlier blogs such as this one. But, the company launched a growth and expansion strategy that has incited Wall Street to bid up its shares.
Apparently Gannett, the newspaper behemoth, witnessed the value of broadcast TV station ownership and made a move to substantially raise its stake in that sector with an agreement to acquire Belo Corp (NYSE:BLC). The takeout price was pegged at $13.75 a share, well above the pre-announcement value of Belo Corp (NYSE:BLC)’s shares.
The immediate advantage to owning TV stations is a steady stream of healthy cash flows that may be reinvested in the business or doled out to shareholders. Viewership ratings, however, can help or hurt a specific company’s performance, and can be a key positive factor, such as with CBS Corporation (NYSE:CBS), owner of many CBS Corporation (NYSE:CBS) stations.
How Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) has Expanded
In 2012, Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) increased its station count to 86 from 73 without issuing additional long-term debt. So far this year, it has inked deals to purchase seven more stations, continuing to boost the number of FOX affiliates it owns. Indeed, FOX is its largest station group, followed by MyNetwork TV, the CW, CBS Corporation (NYSE:CBS) and ABC as of March 31st.
Revenues are reflecting the new assets. However, due to it being a cyclically slow (non-election or Olympics) advertising year, and possibly because of lower margins on new stations, earnings have trended lower in 2013. Illustrating how stronger ratings can assist results, CBS Corporation (NYSE:CBS) is contributing 23% of ad time sales, though it comprises only 13% of the station count.
It is likely that management will continue to seek out buyout opportunities, while continuing to pay a dividend (yield currently 2.1%). Purchase the shares in anticipation of a much-improved bottom-line showing and for income.
The broadcast advertising market’s segmentation
Being that Sinclair Broadcast Group, Inc. (NASDAQ:SBGI)’s stations are predominantly in small- and mid-sized U.S. cities, its revenues are derived mostly from locally-based advertisers in each market. It also receives a portion of revenues from the national ad market. The automotive industry, including automakers and dealerships, comprises the largest advertising group. Spending has climbed this year, likely in tandem with rising domestic automaker profits.