Regardless of whom gets elected, these Cash Cow stocks are big election winners
Regional broadcasters benefit from digital expansion, local news & sports, and recurring excess cash generation.
Americans tend to trust local news more than national network coverage. Viewers watching local news and sports tend to stay tuned for subsequent programming. National firms cannot recreate local programming for every American.
Over-the-top streaming services (like Hulu and YouTube) as well as professional sports teams (from the NBA, NHL, NASCAR…) are signing deals with local broadcasters to air and replay their content. Meanwhile, Wall Street does not recognize the value of local broadcasting content and its advertising revenue.
Coverage of the Paris Olympics and strong election spending should result in all-time record revenue, earnings and cash generation for local broadcasters. While 2021 and 2022 aired the Olympics and the pandemic make-up Olympics, the games did not recur in 2023. This resulted in hard comparisons, lower broadcasting growth rates and lower valuations in 2023. This year’s US Olympic broadcast viewership likely resulted in record advertising revenue. Unlike Olympics taking place in Asia, US viewers watched the Paris games that same day.
Meanwhile, there is an election next Tuesday. In 2016 about 20 Republican contenders spent lots on Presidential primary advertising. In 2020 upwards of 20 Democrats spent lots of money on Presidential primary advertising. Much of the 2024 election advertising was delayed given fewer primary challenges. This results in record results for the third and fourth-quarters. While the fourth-quarter only contains five pre-election weeks, historically it logs more political revenues than the third-quarter. Revenue is recorded when an advertisement is aired; however, cash is received upon booking the advertisement.
We expect our holdings in this category to report superior revenue, earnings, operating cash flow and free cash flow growth. Their soon to be reported third-quarter cash generation should exceed results of any prior full-year. This cash can be used to pay down debt, raise dividends and repurchase stock.
The Capital Management Corporation’s Four Cash Cow Holdings:
Gray Television’s (GTN) full-year 2024 cash generation might exceed its current stock market capitalization. The land value of Gray’s unencumbered Atlanta Project might also exceed its total stock market capitalization.
We expect GTN to use its record cash flow to repurchase debt at a discount to par. Gray’s subsequent recurring annual interest expense savings could top 25 cents per share.
Nexstar Media Group’s (NXST) local stations together reach most Americans.
In recent years, NXST purchased the money losing CW Network. As NXST improves the CW, these operations should become profitable. We expect this to occur by early 2026. A revitalized CW would further enhance NXST’s long-term growth trajectory and valuation.
With its extraordinary third-quarter cash generation, NXST can acquire another television station and pay down debt. We expect NXST to generate so much cash that it will also continue to retire shares and raise its dividend annually.
Tegna Incorporated (TGNA) continues to retire both debt and shares. TGNA is expected to use third-quarter excessive cash flow to repurchase debt at a discount to par (which can result in one-time gains) and aggressively repurchase shares. Both of these actions serve to raise future earnings-per-share.
Sinclair Incorporated (SBGI) has numerous side investments. SBGI cashes-in as these pay-off. A huge cash inflow should come from its shares and/or warrants in Bally’s Corp (BALY), which agreed to a cash takeover. Management has estimated its investment arm as being worth approximately the current value of all SBGI shares.
SBGI is cheap after it’s failed investment in Diamond Group (formerly Fox Sports), which was purchased on the eve of the pandemic and the cancellation of at least one season of sporting events.
Diamond should exit bankruptcy within months. SBGI already reserved its estimated obligations to the Diamond bankruptcy. However, SBGI is also a claimant. Bankruptcy settlement funds SBGI receives as well as future recurring revenue from post-bankruptcy Diamond, do not appear to be reflected on SBGI’s balance sheet or in its stock price.
On top of all of this, SBGI happens to be one of the largest regional television broadcasters. A good portion of its massive third-quarter cash windfall was likely used to pay down debt (including repurchases at a discount to par).
SBGI recently raised its third-quarter revenue projections and provided record full-year revenue projections.
– Tim
Timothy C. Call, CFA
President
The Capital Management Corporation
Disclosure: The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Views represented are subject to change at the sole discretion of The Capital Management Corporation. Past performance is not indicative of future results and the opinions presented cannot be viewed as an indicator of future performance.