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Sinclair Broadcast: Last Dip Was Buying Opportunity, This One May Not Be

Apr. 01, 2021 10:47 AM ETSinclair, Inc. (SBGI) Stock12 Comments
Max Greve profile picture
Max Greve


  • Sinclair's 2020 operating profit surge was partly COVID-induced, partly election-induced, and partly accounting mirage.
  • The long-term profit run rate, which I previously calculated at $150 million, now appears more like $80 million per year.
  • That is not enough to justify the current share price, even on the dip, let alone a significant upside.
Sinclair Broadcasting In Spotlight After Viral Video Shows Local TV Anchors Reading Identical Script Lambasting Fake News
Photo by Win McNamee/Getty Images News via Getty Images

Sinclair Broadcast Group (NASDAQ:SBGI) has been one of my better investments over the last two years, in both directions. In 2019, I was bearish on the company after its RSN acquisition and saw it go from $66 shortly after

This article was written by

Max Greve profile picture
Max Greve is a graduate of Northwestern University with a quadruple major in History, Economics, Political Science, and International Studies. Max is a full-time writer and in addition to stock market trends also writes articles on government, current events, macroeconomic trends, and last but not least, the ongoing inefficiencies of professional sports.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (12)

AJHackett profile picture
Max- Very nice review and call. At current trajectory chart looks like it's headed to $11 although going into an election year I'm not so sure it will get there. However there's a Jul'23 $12.50/$10 Put Spread bet and a larger Dec'23 $10/$7.50 Put spread bet that are interesting. My guess is the later is probably just protection but its still a bit of a magnet. Would enjoy hearing your updated thoughts? Thx.
Max Greve profile picture

Hey AJ, thanks for reading.

I am currently not writing but I may return to SA in the near future and if I do I would definitely be willing to take another look at Sinclair. For now, I am not investing in this ticker either way, as potential (but unproven) legal liabilities and undervalued steady operating income at the broadcast side combine to create a very uncertain picture.

If I do start writing again I would be happy to research and share more detailed thoughts.

Thanks so much for checking in. It was a very profitable few years for sure.

Report risk profile picture
Mario Gabelli on CNBC recommends SBGI. At $2.5 billion, he said it seems too cheap. He thinks he can make 50% over the next 2 years.
Do you have a feeling about the Bally name now being linked to the RSN . Will that improve the share price ?
Max Greve profile picture

Actually just wrote a Bally's article, too. Basically I see it as a good deal for Bally's, but less so for Sinclair. It's a little hard for deals like that to move the needle too much, simply because Bally's annual branding fee come to $8.5 million and Diamond when healthy was generating as much as $8.5 BILLION a year in revenue.
Report risk profile picture
So you did the math a few months ago and came up with $150 million, and a few months later it is $80 million? Based on this, it sounds like you don’t have a real good feel for the run rate at Sinclair. If you take a 10 year trend line, I think you’d come up with a much better number, as the legacy business really doesn’t dramatically change from year to year.

And the other part would be valuing Diamond as a call option. I’m guessing there is some percentage chance that it will work out? Or are you 100% that it will be worthless? If there is a chance it isn’t, there should be some value, even if small, assigned to that?
Max Greve profile picture
@Report risk

It's a fair criticism, but math does change as projections are replaced by hard numbers. My earlier math, as I said, incorporated some assumptions about political spending, core ad spending, distributor subscriber counts, etc. Now, with the year ended, it's a good time to run the math again. The fact that it comes up different when assumptions can be replaced with hard figures isn't so surprising, I wouldn't think.

It's important in investing to recheck figures and be open to changing your projections, I submit.

As far as Diamond, I guess I don't really see it as a call option, no. I agree such an option would have at least some worth, but Diamond appears to only be profitable when sports are cancelled. Even Sinclair has now written Diamond down to a negative equity value, so it doesn't seem out of line to assign its common shareholdings a value of zero.
Report risk profile picture
@max Greve

On Diamond, I would think there would some value as a call option. I mean why would they be putting work into it making deals with Bally’s getting penny warrants for $500 million of BALY stock and the full rebranding if there wasn’t a chance it would work?

As for the historical cash flow (deprecation + net income) per Value Line:
2014 $440 million
2015 $437 million
2016 $528 million (election year)
2017 $580 million
2018 $621 million
2019 $603 million

I agree 2020 numbers are pretty hard to make sense of, but if you’re talking about the Sinclair TV Group only, this should provide a pretty good historical snapshot, and trend line for future expectations. Even if carriage fees fall, the numbers are still fairly easy to project based on this.

And of note, the number of shares outstanding before 2020 was always 90 million to 100 million shares. In 2020, they repurchased 20 million shares, and seem to be continuing to rephrase shares. This shows that management is confident in their cash situation, and has plenty of cash to cover near term needs.

The share price bounced from $25 to $40 averaging $30-ish from 2014 up until the acquisition, which seemed like a fair and reasonable price. With substantial shares bought back, and Diamond in a siloed company that wouldn’t affect Sinclair TV; and with the acquisition of a couple more channels since then, and likely a slow additional stream of acquisitions coming; and with a minimal call option value, my target price is around.... let’s just say it’s dramatically higher than yours.

Best of luck to everybody. I could be completely wrong, but this is my big picture logic for why I’m long. Would love for you to pick it apart.
@Report risk Thanks !!. I'm also long. Stock looks cheap even if we take long term decline of local news and sports. Also as you have mentioned the siloed Diamond gives SBGI the potential to enjoy any upside but limits any major downside. Also read in Valueinvestorsclub.com that SBGI has the option withdraw 500 million every year and also can do a one time withdrawal of 1 billion from Diamond (not 100 % sure of the allowed withdrawals but management seems shrewd and most likely they have this in the contract) . The write-down could be SBGI taking advantage of Covid to get tax benefits and get some benefit from bond holders.
Not saying there is no risk in the stock but seems like risk is very much reduced.
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