8 Growing Communications Companies Near Their 12-Month Highs

by: Lenny Grover

By looking for companies that are above 95% of their 12-month high, have positive revenue growth, yet still have EV/EBITDA ratios less than 7, we can scout for positive price-movements, revenue growth, and attractive valuations simultaneously. The Screener.co stock screener allows us to construct this screen, along with several other filters. The full set of conditions used is below:

Country Located In
Price-closing or last bid
0.95 * Price-12 month high
Revenue Change-TTM over TTM
Revenue Change-year over year
Exchange Traded On
"Over The Counter"

Though Screener.co is a global stock screener, we have configured it to only list companies trading on U.S. exchanges. Given the recent spate of malfeasance among Chinese-listed companies, we are excluding all China-based firms from the screen. Also, we are removing non-listed companies. As of 4/5/2011, this screen produces a list of 159 companies, including a few well-known brands. Many of the companies are financial services firms that have benefited from the recovery of that sector from the dip experienced during the financial crisis, or energy companies that have benefited from the run up in commodity prices. To narrow the result set, lets eliminate results from these two sectors using the conditions:


Now we are down to 93 companies. Over-represented on the list are companies from the retail, grocery, and communications industries. In this piece, let's focus on the communications sector, specifically satellite, cable/fiber, and broadcast. That leaves eight companies of note:

Company Name
DISH Network Corp.
SureWest Communications
Fisher Communications, Inc.
Sinclair Broadcast Group, Inc.
Comcast Corporation
Charter Communications, Inc.
Time Warner Cable Inc.
Echostar Corporation
DISH Network and Echostar are both satellite communications companies. Echostar makes the set top boxes and DISH offers consumers satellite programming. DISH is trading at an EV/EBITDA ratio of 4.9x and Echostar has an EV/EBITDA ratio of 6.8x. DISH has a levered balance sheet with $6.5B of total debt and negative net tangible assets while SATS has ~$700M of net current assets and net tangible assets of $2.8B.
DISH had 8.4% YoY revenue growth, while SATS experienced 23% YoY revenue growth. Looking at the historical revenue numbers from Screener.co, though, shows that SATS' annual revenue for 2010 is below its 2008 level while DISH had consistent growth for the past two years. In my opinion, neither company appears to be a screaming buy at is current valuation.
SureWest offers regional fiber-to-the-home integrated communications services. It is yielding 2.3% and is trading at an EV/EBITDA ratio of 5.3x. Its P/E ratio is substantially higher at 59x, despite having net debt on its balance sheet and the low interest environment we find ourselves in.
At first, this was puzzling; a large part of the answer for this riddle lies in the company's TTM effective tax rate last year of 50.0%, according to Screener.co and confirmed at Yahoo Finance. That is an unusually high tax rate for a U.S.-based company and makes the EV/EBITDA ratio less useful than it usually is as a valuation metric. What's worse is that the rates for 2008 and 2009 are even higher. In addition, the company's YoY revenue growth rate barely meets our screener criteria at 0.74%. While it is good that at least one company is paying its fair share of taxes, the high P/E ratio, debt load, low revenue growth rate, and tax rate are turn-offs.
Fisher Communications is a TV and radio broadcaster and Sinclair Broadcasting is a TV broadcasting company. FSCI has an EV/EBITDA of 6.3x and SBGI's is also 6.3x. FSCI had 31.6% YoY revenue growth while SBGI at 16.9%. SBGI is yielding 3.8% while FSCI is not paying a dividend. Both companies have debt, but SBGI has negative $1.0B of net tangible assets while FSCI has positive $110M of net tangible assets.
The financial profiles of these companies are different despite having similar valuation metrics and being in the same industry. Income investors may be attracted to SBGI's healthy yield, while value-oriented investors might be scared away by the highly negative net tangible assets. Both companies' revenue shrank between 2008 and 2009 before growing again between 2009 and 2010. This cyclicality makes both companies less of a growth story than I would like at a 6.3x EV/EBITDA ratio (though I will freely admit to being stingy).
Comcast, Charter, and Time Warner Cable are cable companies that represent three of the top six MSOs in the U.S., and three of the top four cable companies (as noted here). All have EV/EBITDA ratios between 6.4x and 6.7x and YoY revenue growth rates between 4.5% and 6.1%. Comcast is yielding 1.9%, Time Warner Cable is yielding 2.7%, and Charter is not paying a dividend.
Given the tight range of EV/EBITDA ratios and growth rate, it does not appear that the market is valuing any one of these leading companies at a substantial premium or discount relative to the others. Too bad!
Being a value-oriented investor, it is somewhat difficult for me to find bargains among momentum companies trading near their 12-month highs. But, it you are a momentum, growth, or income investor, maybe you found something here that you like.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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