We were oh-so-fortunate to be hit with a WSJ headline at 3:48 PM on a Friday (8/16) afternoon (in AUGUST no less) confirming that Apollo had approached TGNA about a potential transaction and was rebuffed earlier in the year. While the information in and of itself is not at all surprising, we find the timing interesting given Standard General, LLP just disclosed a 9.2% stake in TGNA’s stock. We dig deep in this note and ultimately assign a 55% probability to a takeout of TGNA at $21 (10x 18/19 PF EBITDA); which leaves a 45% probability that something “else” happens. In this scenario, we default to our $17/sh. June ‘20E price target. We upgrade TGNA to Outperform from Peer Perform & raise our PT to $19 from $17.
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The hottest names this week were CMLS (534 bps better than the S&P), WWE (434 bps), GTN (395 bps), ETM (311 bps), and CHTR (237 bps).
In this brief note, we provide our thoughts on the very, very, very long-awaited merger between CBS and VIAB.
This morning (8/13) CCO issued a press release illustrating the steps it has taken to address the capital structure and providing some H2’19 guidance metrics. While much of the release re-hashed some older news (i.e. – the secondary offering/$333.5MM debt pay down from a few weeks ago, and the senior secured note issuance from Friday), there were two new items of note: 1) the size and rate of the rumored term loan - $2B at LIBOR+350bps, and 2) the H2 guidance - which we’d characterize as being essentially in-line with our estimates. While we applaud management’s work on addressing the capital structure and appreciate the additional guidance disclosure, CCO remains a highly levered stock (7.9x as of 6/30) in a volatile tape and likely to remain under some pressure in the near-term. We maintain our Peer Perform.
SSP printed a nice Q2 Friday (8/9), coming in ahead on basically every metric. Yet, the stock ended the day -11%, underperforming a pretty bloody tape (the S&P 500 was -1%). We’ve been scratching our heads on this one but did hear from a few investors that the underperformance may have been due to lack of clarity on the timing of retrans contracts and the FCF guide (which was provided AFTER dividends so probably sounded like a miss to some), as well as fear that SSP will be negotiating the majority of its retrans footprint in one fell swoop next year (current blackouts are fueling this one). We think the price performance was overdone especially since we are slightly raising estimates, but we stretch for a NT catalyst at the moment.
In lieu of our typical What's Hot/What's Not, we are providing a recap of earnings as well as a link to each note.
Net revenues were in line at $484MM. Importantly, core advertising (excluding political but including WGN America) was up 1% vs. our expectation for a LSD decline (-1%). Also importantly, retrans/carriage came in slightly ahead (by a little less than a $1MM but a good trend nonetheless given all the noise this earnings season). Political was the only line item that came in slightly below our expectation, which was immaterial.
Recall that our published estimates are on a PRO FORMA basis – specifically, our ests. include SSP’s acquisitions of the 2 stations from GTN/Raycom and Cordillera as if they closed on 1/1/19, but NOT the 8 stations from the TRCO deal (which still hasn’t closed yet). As such, we compared our estimates to SSP’s apples-to-apples pro forma figures disclosed in its earnings release.
It is truly all about expectations. Both CMLS and ETM put up ~2% same station revenue growth in Q2, yet CMLS’ stock was +16% the day of its print (yesterday – 8/8) while ETM was -36% the day of its print (on 8/7). And if we go line by line, we’d actually say ETM’s underlying business sounds a bit stronger than CMLS’. So why the divergence in stock price performance? It is simply all about expectations. CMLS beat its “pace” and hence Street revenue estimates by 200bps; while ETM missed its “pace” and hence Street estimates by 200bps. We also think CMLS set the bar appropriately low for Q3 – pacing down “slightly”.
CBS beat across the board – rev. by 200bps, OI by 520bps, & EPS by 310bps – with content licensing & underlying network ad contributing nicely. We were also blessed with Ad Sales Chief Joanne Ross, who dug deeper into the ad market and unpacked the strength they’re seeing in linear, digital, & the upfronts. We didn’t get any specific color on Q4 this time, but mgmt. did reiterate the LT guide – and most interesting, we implicitly saw one way CBS could unlock synergies with VIAB. While our ‘19E/’20E rev. goes up on the better ad, DTC and licensing trends, we did lower our OI and EPS on continued content investments that are driving the stronger topline results. We reiterate our Outperform but lower our June ’20 price target to $63 from $65 on the reduction to our EBITDA estimates.
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