Gray TV stock saw a massive selloff Friday after disappointing Q3 earnings.
Gray Television (NYSE:GTN) stock was plummeting Friday, down about 30% as it sank below $5 per share into penny stock territory after posting disappointing third quarter earnings.
Gray, one of the largest owners of TV stations in the U.S., saw revenue and earnings fall short of expectations in what was anticipated to be a strong quarter due to political advertising across its stations.
Nonetheless, revenue was still robust, rising 18% year-over-year to $950 million, but it was short of the $967 million that analysts had projected.
Net income also jumped, rising to $83 million up from a net loss of $53 million in the same quarter a year ago. Gray generated earnings of 87 cents per share, up from -57 cents per share in Q3 2023, but it was below expectations of 92 cents per share.
Based on these numbers and a worse-than-expected Q4 outlook, the stock was dropping sharply on Friday. As of 2:00 p.m. ET it was down about 30% to $4.01 per share. For the year it has fallen about 55%.
Is this a buying opportunity for investors?
Revenue up on political ads, but below expectations
Gray Television, also known as Gray Media, is one of the largest owners of TV stations in the U.S. It owns stations in 113 U.S. markets across the country from Maine to Oregon, an Alaska and Hawaii, with 77 of them ranked as the top station in their market.
Gray’s two big revenue drivers are advertising and retransmission consent, while its media and video production companies are growing, but a distant third.
In Q3, core advertising revenue was up 1% year-over-year to $365 million, driven by a surge of political advertising. Political ads accounted for $173 million of the core advertising revenue, up from just $26 million in Q3 of 2023, a non-presidential or mid-term election year.
But given the record amount of ad spending this political season, the revenue from political ads fell short of Gray’s expectations. It was also lower than the $190 million the company generated in Q3 of 2020, the last presidential election.
“Our results in the third quarter were largely in line with our guidance, with the exception of political advertising revenues, which, while strong, were slightly below our expectations,” Gray officials said in the earnings release.
Gray officials said advertising revenue was down in several Southeastern markets due to the stations extensive, commercial-free coverage of Hurricane Helene in late September. Also, political advertising revenue was impacted by fewer competitive non-presidential races in some of its markets.
The retransmission consent revenue in the third quarter of 2024 was $369 million, down 2% but within the firm’s guidance range.
Full-year revenue guidance lowered
Friday’s 30% slide could also be attributed to Gray’s Q4 outlook, as the firm expects core advertising to be down approximately 11% compared to the fourth quarter of 2023.
This is due primarily to the displacement of political advertising revenue after the election, and the movement of SEC college football games in Southeastern markets from CBS to ABC.
Also, the continuing impact of Hurricane Helene and the added impact of Hurricane Milton in the fourth quarter is anticipated to have an adverse impact on core advertising revenue in the Southeast.
As a result, core advertising revenue for the full year is expected to be $1.475 billion to $1.488 billion, down approximately 3% from earlier guidance and 2% below 2023.
Is Gray Television stock a good value?
Investors’ reaction to the quarter and the Q4 guidance seems a tad overblown, due to the factors the company laid out. Gray remains a dominant player in most of its markets and has been efficient at reducing expenses and lowering debt. It also recently established a cost containment plan to reduce its operating expense run-rate by approximately $60 million on an annualized basis.
The six analysts that cover Gray have a median price target of $8 per share, which is about a 94% increase over the current price.
The stock has a dirt-cheap forward P/E of 1.1 and a five-year P/E-to-Growth ratio of 0.11. The stock is currently trading near 10-year lows, so it might not be a bad pick up, but with Q4 looking weak, maybe wait to see if it dips even further into penny stock land before considering it.
