Point71 Steven Cohen owned 2,037,366 shares of Gray Television Inc. (GTN, Financial) at the end of 2017, with two other big name guru investors joininging him -- Jim Simons (Trades, Portfolio) (860,850 shares) and Mario Gabelli (Trades, Portfolio) (476,600 shares).
Gray Television is a American media and broadcasting company that owns and operates over 180 program streams, including 36 channels of CBS, 27 channels of NBC, 19 channels of ABC and 14 channels of FOX Network, ranking No. 1 or 2 in most of its markets.
Back in mid-September, I first highlighted the stock as it traded just below $14 a share, making a run up to $17.80 by late January. Now it’s below $12, in some part related to equity dilution. Gray issued 17.25 million new shares in December, raising the share count over 20%, but giving the company over $462 million in cash to continue acquisitions.
Again, Gray is a solid growth story. After faltering slightly in 2008, the company has increased its revenue from $270 million in 2009 to $883 million in the last 12 months, going from red to black on the bottom line, boosting book value 10-fold.
Earnings are skewed this past year because of new tax regulations, so the low price-earnings ratio shouldn’t be seen to make this stock a screaming bargain. It isn’t. However, normalized earnings with the new share count over the next two years should be above $3 a share -- 25% of the current market value, 11% of the enterprise value.
The company has completed over $1.4 billion in acquisitions since 2014, now reaching more than 10% of American households, and has the dominant position in the majority of its markets. Gray is also well-positioned to benefit from the next two election cycles as political advertising ramps up. Top-ranked TV stations in local markets can secure over half of the total political advertising buys in their regions. That's big.
In fact, Gray led all broadcasters in political revenue per household in 2016, averaging $9.63 per household versus $5.03 for second place, Nexstar. 2018 will see congressional elections across the country, as well as gubernatorial elections in many states. More ad spend means more revenue run, and with Gray able to convert that into high profit margins and book value growth, shareholders at this price will likely be rewarded in the short and long term.
Disclosure: I am not long/short GTN, but may initiate a long position in the next 72 hours.
