5. Gray Media Inc. (NYSE:GTN)
Number of Hedge Fund Holders: 24
Gray Media Inc. (NYSE:GTN) is a multimedia company that owns and operates television stations and digital assets in the US. It owns Gray Digital Media, which is a digital agency that provides clients with digital marketing strategies. It also operates video production companies and studio production facilities.
Its third quarter in 2024 saw a boost in overall revenue due to its broadcasting segment. Total revenue reached $950 million, an 18% increase year-over-year. This was attributed to political advertising revenue, which contributed $173 million. The company expects its full-year political ad revenue to reach ~$500 million. Despite headwinds caused by political advertising and the shift of Southeastern Conference football games, core ad revenue (excluding political) saw a 1% year-over-year increase. This reflects the company’s success in attracting local businesses to its platforms. Its digital ad sales segment also expanded, consistently delivering double-digit growth rates and setting new records for revenue.
In January, Gray Media Inc. (NYSE:GTN) joined forces with three other major broadcasting companies (E.W. Scripps, Nexstar, and Sinclair) to launch EdgeBeam Wireless. This joint venture will use ATSC 3.0 technology to provide nationwide wireless data services. Gray Media Inc. (NYSE:GTN), along with its partners, recognizes the potential of ATSC 3.0 to offer a cost-effective and secure alternative for data delivery, particularly for applications like automotive connectivity, content delivery, and enhanced GPS. This initiative represents the company’s eagerness to grow.
Miller Value Deep Value Strategy increased its position in Gray Media Inc. (NYSE:GTN) during Q2 2024, believing it to be undervalued. The firm highlighted the company’s strong market position, robust cash flow generation, and growth initiatives. It expects significant value appreciation in the coming years. It stated the following in its Q2 2024 investor letter:
“Our two largest detractors during the quarter were Nabors Industries (NBR) and Gray Television, Inc. (NYSE:GTN), whose share prices were down 17% and 16% respectively during the quarter. We think both company’s share prices are at deep discounts to their long-term fundamental value; we have recently increased both holdings.
Gray Television remained under pressure during Q2, with ongoing marketplace concerns on the company debt leverage. Gray has limited maturities over the next 2 years and recently announced an opportunistic debt repurchase program. After a slow start to political advertising due to weaker than expected primaries, we expect to see a nice ramp in political advertising in the back half of the year. Gray’s strong local TV stations, #1 and/or #2 in 89% of their markets, has the company well positioned to achieve $500-700M in high margin political advertising in 2024. In addition, Gray has been outpacing peers in growing their core business over the past couple of years and still appear to be in the early innings of an improvement cycle. Management has recently retrained their salesforce with a greater focus on expanding their high margin digital market share over the next couple of years. In addition, ATSC 3.0 (industry new IP standard), provides opportunity for Gray to stream more content and capture new high margin digital revenue streams overtime. We see the potential for $2.5B of free cash flow generation over the next 5 years that could allow the company to rapidly de-lever their balance sheet and accrue value to the equity holder. With a greater than 80% earnings and free cash flow yield, and an attractive 6.2% dividend yield, we believe patient investors have potential to be rewarded over the coming years.”
