How the Election Cycle Will Win For TV & Media (GCI, SSP, JRN, GTN, SBGI, BLC)

Gabelli & Co. has a unique research report out this morning and we took a look at this to see where the opportunity is.  Imagine that television stocks should still be winners after all the reports for years about the death of old-media.  Yep, and the driver is actually the political climate with a highly contentious presidential election and with many seats in Congress up for grabs.

Some of the media and publishing companies which will benefit are Gannett Co. (NYSE: GCI), The E. W. Scripps Company (NYSE: SSP), Journal Communications Inc. (NYSE: JRN), Gray Television Inc. (NYSE: GTN), Sinclair Broadcast Group Inc. (NASDAQ: SBGI), and Belo Corp. (NYSE: BLC).  It turns out that Gabelli is not alone as the consensus price targets from Thomson Reuters have much higher price targets even if some have muted ratings.

What Gabelli sees is a climate of greatly increased ad spending in 2012 but the bump is expected to start in August 2011 with the Ames Straw Poll on the campus of Iowa State University.  The report does not try to pick candidate winners, but local television station companies that will broadcast “vast amounts of political advertising” are singled out as the winners.  The gains in the business seem to be well into the double-digits in percentages.  The other drivers will be healthcare and drug advertising, as well as labor groups and corporate spending.

We would have been a bit skeptical on this notion had it not been for the Supreme Court mandate that now allows corporations and special interest groups to spend unlimited funds exercising “free speech” via advertising.  This will be the first presidential election where that is the case and it could bring serious gains to old world media.

Gannett Co. (NYSE: GCI), a Warren Buffett stock holding, should see the most political advertising of about $100 million or more.  Outside of USA Today, its stations in Washington, D.C., Florida, Ohio, Missouri and North Carolina “position it well to capitalize on expected close races in those states.”  Gannet does actually have a dividend, but only about 1.2% in yield.  At $13.40, its 52-week range is $11.65 to $18.93.  Its market cap is $3.2 billion and Thomson Reuters has a consensus price target above $18.50.  Gannett was well above $50 for much of the last decade before the great recession.

The E. W. Scripps Company (NYSE: SSP) was one noted by Gabelli which “should do quite well with its two stations in Florida” along with a boost from healthcare issues in advertising.  At $8.22, its market cap is $486 million and its 52-week range is $6.71 to $10.56.  Analysts have a $10.50 consensus target according to Thomson Reuters.

Even the old Journal Communications Inc. (NYSE: JRN) is listed as a winner which “appears to be in the right places.”  Cited are Wisconsin issues mostly, but other markets are there too.  At $4.84, the market cap is now only $274 million and its 52-week range is $3.45 to $6.18.  Analysts have a $6.50 target and this was above $10.00 as recently as 2007.

Gray Television Inc. (NYSE: GTN) was called one which “always does a good job capturing a disproportionate share of political advertising…”  At $2.14, its 52-week range is $1.44 to $3.10 and this one was above $10.00 as recently as 2007.  The market cap is just under $125 million, making it among the smaller winners.

Sinclair Broadcast Group Inc. (NASDAQ: SBGI) is one that Gabelli anticipates “will generate record levels of political advertising.”  The report does note that company is somewhat handicapped by its large number of Fox, CW and My Network stations which carry less news programming than competitors and cater to a younger demographic.  AT $9.83, its 52-week range is $5.25 to $13.07.  Thomson Reuters has a price target consensus of $14.17 and this one peaked at $30.00 back in the 1990s. It also sports close to a 5% dividend.

Belo Corp. (NYSE: BLC) is noted as one with “relatively low leverage, attractive large market stations and recently announced dividend” all culminating to make it attractive.  At $6.93, its 52-week trading range is $5.04 to $9.27.  This was above $10 as recently as 2008 and Thomson Reuters has a consensus price target of $9.50.  Its market cap is above $720 million.

What is almost funny is that when you screen media companies these now appear in many different searches.  They are turnaround companies for sure, but they also screen as value stocks in many cases due to low earnings multiples or due to asset values.

JON C. OGG