Stocks of the biggest U.S. local TV station owners, among them Nexstar, Sinclair, Tegna and Gray, continue to slump badly as investors recoil from their exposure to a worsening ad market. Even so, one significant player in the station game, Fox Corp., is being touted in some corners as the best-situated U.S. media company during the coronavirus pandemic.
Stations have absorbed some of the hardest punches in the media business, with the virus toll following an already challenging period of viewership decline. Consolidation waves in recent years have left a handful of players controlling the sector but uncertainty for many other stakeholders. Even the long-awaited influx of presidential campaign spending, projected to smash records, is now under a cloud.
The National Association of Broadcasters has called on Congress to include its members in COVID-19 aid provisions. NAB president Gordon Smith, in an interview last month on Westwood One radio, that advertising had “fallen through the floor” even as costs of covering the virus continue. The result, he said, is a “crisis” requiring federal intervention.
Shares in Nexstar, the largest U.S. group, ended Thursday at $59.14, down from their $100-plus level in early March. Gray has fallen to $10.08, less than half its level in mid-February. Sinclair, whose local woes have been compounded by exposure to sports via its acquisition last year of the former Fox regional sports networks, dipped to $14.29. The stock began 2020 at $32 and traded north of $60 last spring. Tegna, which had already been facing a proxy battle, has dipped to $10.53, a 30% decline in a month.
Fox Corp. shares, meanwhile, have been in the red since they started trading last April after the $71.3 billion acquisition by Disney of 21st Century Fox. After debuting at $38.05 last April, they closed Thursday at $25.54. Even so, as the virus lockdown took hold over the past month, Fox shares have held steady, a notable feat in this volatile environment.
S&P Global, in a note on Wednesday, said Fox “may be the best positioned of its pure media peers to weather the pandemic due to its conservative financial policy.” In an upgrade of Fox from “neutral” to “buy” on April 2, Guggenheim analyst Michael Morris called Fox “relatively attractive compared to media peers,” with the company the “best positioned among peers in a weaker, but ultimately stable consumer environment.”
Compared with Disney, Comcast and WarnerMedia, Fox is not spending heavily on its own direct-to-consumer streaming service. Instead, it is sticking with its strategy to emphasize live sports, unscripted and news broadcasts, augmented by digital offerings. Admittedly, that is a tricky strategy without any sports in action, many brand marketers pulling back on TV and elsewhere, and more than 40% of annual revenue coming from advertising. Even so, a sizable investment in animation, a model requiring fewer pilots, and weekly output from the WWE, which has been pummeled but is still staging matches in Florida, give Fox advantages, as Deadline has reported.
While Fox News, FS1 and the Fox broadcast network get more headlines, cash flow at Fox is propelled by local TV, as the company runs one of the most lucrative U.S. station portfolios. (The company does not break out station revenue).
S&P said Fox’s “healthy cash flow generation and significant cash balances should allow it to counter the decline in its EBITDA.” The company could end 2020 with $4.6 billion of cash on its balance sheet, rising past $5 billion by the end of 2021, the firm predicts. With numerous media peers raising debt to fund their operations, Fox has been able to draw on its reserves thus far, though it did issue $1.2 billion in new debt in response to the crisis.
While Fox’s path lately hasn’t been quite as bumpy as those of local station groups, it warned in a March 31 SEC filing that despite a steep rise in Fox News ratings, COVID-19 “could have a material adverse effect” on near- to medium-terms results.
Station owners will get to make their various cases to Wall Street in the coming weeks via quarterly earnings reports. Fox hasn’t yet announced a date for its quarterly reveal, but the publicly held groups are all due to report in the first week of May.
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