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Gray TV , Still Some Upside.

|Includes: Gray Television, Inc. (GTN)

Price (December 23, 2016)

$10.90

Rating

BUY

12- Month Target Price

$12.00

Gray Television Network, Inc. (NYSE:GTN)

3Q16 record-setting results reflect organic revenue growth despite disappointing political revenue. GTN trading at two-year lows after revenues miss despite 35% revenue growth creating an attractive buying opportunity. Reiterating our BUY rating and adjusting our price target to $12.

52-Week Range

$7.00 - 17.70

Total Debt (million)

$1.71 billion

Shares Outstanding

66.0 million

Total Debt/Equity

373.4%

Insider/Institutional

5.8% / 84.5%

ROE (NYSE:TTM)

11.1%

Public Float

62.2 million

Book Value/Share

$6.36

Market Capitalization

$601.9 million

Daily Volume (90 day avg)

885,303

FYE DEC

2014A

2015A

2016A/E

EPS($)

ACTUAL

CURRENT

PREVIOUS

CURRENT

PREVIOUS

Q1 Mar

$0.02A

$0.10A

$0.10A

$0.12A

$0.12E

Q2 Jun

0.03A

0.17A

0.17A

0.25A

0.25E

Q3 Sep

0.24A

0.09A

0.09A

0.26A

0.38E

Q4 Dec

0.54A

0.21A

0.21A

0.59E

0.59E

Year*

$0.82A

$0.57A

$0.57A

$1.22E

$1.34E

P/E Ratio

20.1x

20.2x

20.2x

6.6x

6.0x

Change

 

-30.5%

-30.5%

114%

135%

FYE DEC

2014A

2015A

2016A/E

Revenue ($ mil.)

ACTUAL

CURRENT

PREVIOUS

CURRENT

PREVIOUS

Q1 Mar

$ 91.3A

$133.3A

$133.3A

$173.3A

$173.3A

Q2 Jun

107.3A

143.5A

143.5A

196.6A

196.6A

Q3 Sep

131.7A

151.1A

151.1A

204.9A

211.5E

Q4 Dec

177.8A

169.5A

169.5A

228.2E

228.2E

Year

$508.1A

$597.4A

$597.4A

$803.0E

$809.6E

Change

 

17.5%

17.5%

34.4%

35.5%

Numbers may not add up due to rounding.

Q3:16 HIGHLIGHTS

Company Description

Gray Television Network is a television broadcast company that owns and operates television stations and digital assets in 46 markets throughout the United States.

Despite disappointing political advertising revenue, core revenue was flat compared to the same period in 2015. As a result, on an as-reported basis, total revenue increased $53.4 million, or 35%. In addition to the contribution by acquisitions, total revenue increased from retransmission revenue, and increases in political revenue, due to 2016 being the "on-year" of the two-year election cycle. Adjusting for the impact of acquisitions, on a Combined Historical Basis, total revenue increased $21.6 million, or 12%, reflecting organic revenue growth. On an as-reported basis, the shortfall in political advertising revenue during 3Q16, along with a $19.5 million loss net of tax, from early extinguishment of debt contributed to a net loss of $0.2 million for 3Q16. Excluding that charge, net income would have been $19.3 million, and basic and diluted net income per share would have been $0.27 and $0.26, respectively. On a Combined Historical Basis, broadcast operating expenses decreased. Expected increases in network compensation fees were offset by increases in gross retransmission revenue. The political election presented challenges to political revenue after mid-September. Races expected to be competitive and political fundraising appearing encouraging through the summer was met by actual spending by candidates, political parties and third-parties falling far short of expectations, especially in GTN's markets. GTN will be placing more priority on debt repayment over the next four quarters as a result of the political revenue and uncertain macro environment. GTN has fallen to two-year lows after reporting Q3 earnings where revenues missed despite 35% growth to record revenues, creating an attractive buying opportunity and thus reiterating our BUY rating. We are also revise our price target from $22 to $12 to reflect a peak cycle P/E multiple of 10 X 2016 EPS.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.