Sinclair Broadcast Group: It's An Election Year!

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Price:$11.80

Forward P/E:11

Earnings Growth:57%

Projected Sales Growth:28%

Market Cap:$975 million

Why It's Featured: Ad revenues increase from political campaigns and return of Japanese auto makers.
Danger Zones: Debt heavier after 2 acquisitions.

Sinclair Broadcast Group, Inc., SBGI a television broadcasting company, owns or provides certain programming, operating, or sales services to television stations in the United States.  The company broadcasts free over-the-air programming, such as network provided programs, news produced locally, local sporting events, programming from program service arrangements, and syndicated entertainment programs.

It owns or provides programming and operating services pursuant to local marketing agreements, or provides sales services pursuant to outsourcing agreements to 65 television stations in 39, mostly medium-sized U.S. markets.  Total reach is about 24% of U.S. TV households.  The company was founded in 1952 and is based in Hunt Valley, Maryland.

SBGI traded at 90 cents a share in early 2009.  That was only a little more than the earnings per share of 2008 of 72 cents.  In '09, earnings dipped a little, to 66 cents but came right back to 95 cents in 2010.  The stock reflected the recovery, going to $13.10 early last year.  It dropped again to $6.60 in 2011 but moved up again.  Now it's $12 a share.  Can it keep going?

2011 earnings were just released.  Net broadcast revenues from continuing operations were $648.0 million for the twelve months ended December 31, 2011, a decrease of 1.2% versus the prior year period result of $655.8 million.  The Company had operating income of $225.6 million in the twelve-month period, as compared to operating income of $240.8 million in the prior year period.  Net income attributable to the Company was $75.8 million in the twelve-month period versus net income of $76.1 million in the prior year period.  

The Company reported diluted earnings per common share of $0.94 in the twelve-month period versus diluted earnings per common share of $0.94 in the prior year period. (For more stock ideas, visit: www.theonlineinvestor.com)

Some of the highlights from the fourth quarter were given by the CEO David Smith: "We ended 2011 on a strong note with core broadcast revenues growing, and our largest advertising category, automotive, up almost 12% in the fourth quarter as compared to the same period in 2010.  As we look ahead to 2012, our outlook is for continued ad spending growth by the automotive industry, as well as an increase in political advertising in this presidential election year.  In addition, we expect the market for television station transactions to remain active and intend on evaluating potential transactions as they arise."

Also, the company started operating 7 new stations (serving Utah, Texas, Florida, Rhode Island and Massachusetts) acquired from Four Points Media on October 1 and closed the purchase on January 1, 2012.  In November, SBGI announced it entered into an agreement to buy the broadcast assets, which include 8 television stations, from Freedom Communications for $385 million.  The company began operating those stations December 1, 2011 and should close the deal in the first quarter or early in the second quarter of this year.  Together, these 2 deals give Sinclair 2 full power stations in West Palm Beach, Florida, Freedom's largest market.

The Four Points deal cost about $200 million.  For both deals, the company borrowed $530 million in the form of existing bank facilities and increased a revolving line of credit by $22 million.  Total debt now stands at $1.193 billion compared to $1.142 billion at September 30, 2011.  Long term interest payments are covered 1.1 times by earnings.

For 2012, analysts expect earnings to benefit from these purchases.  Consensus of 4 analysts is that earnings will be $1.48 this year (up 57%) but expect 2013 to recede to $1.08.  The major difference: this is an election year.  Politicians will be putting ads on every 10 seconds whether they're Democrats or Republicans.  SBGI will reap the benefit.  Adding to revenues will be an increase in ad spending by Japanese auto makers as they have almost fully recovered from the tsunami of last year.

There's a solid dividend with SBGI at 48 cents a year, giving a yield of 4%.  The dividend was resumed in the first quarter of 2011 after being skipped in 2010.  In 2009, it was 20 cents, paid only in the first quarter.  In 2008, it was 78 cents.  Don't count on the dividend, but it looks like it will be paid all of this year at a minimum, maybe even raised.

- Essential Numbers:
- Price to sales ratio: 1.29
- Operating margin: 29.53%
- Profit margin: 9.9%
- Return on assets: 9.24%
- Revenues last 12 months: $765.29 million
- Total cash: $12.97 million
- Cash per share: 16 cents
- Total debt: $1.21 billion
- Current ratio: 1.07
- Book value per share: - $1.38
- Beta: 1.71
- 52 week change: - 1.85%
- Shares Outstanding: 80.9 million
- Float: 51.83 million
- Held by insiders: 12.47%
- Held by institutions: 81%

Aggressive investors look for stocks with a potential catalyst.  SBGI has two of them: political and car ads.  The next year should be a strong one.  But what about after that?  No one can tell, but it would be hard to find ad spending from another industry that would make up for the political revenues about to flow.  Still, this next year could be rewarding, even beyond the 4% yield.

- Company Web site: www.sbgi.net

- Ted Allrich
February 16, 2012

 

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