Station Stocks Pounded After Analyst Downgrade

Threat of Additional Regulation Continues to Haunt Shares 3/17/2014 5:54 PM Eastern

Television station group stocks were pounded on Monday after an influential analyst downgraded the sector on what she saw as an increasingly negative regulatory environment.

The Federal Communications Commission has recently proposed restrictions on joint sales agreements and other sharing arrangements that could endanger pending station acquisitions.

In a research note Monday, Wells Fargo media analyst Marci Ryvicker downgraded station stocks to “Market Perform,” adding that although she likes the business, she “can't help but feel incrementally negative on the regulatory environment—especially as it relates to pending and future [merger and acquisition activity].”

The news sent the entire sector downward, with companies that have been most active in the deal market, like Nexstar Broadcasting Group and Sinclair Broadcast Group feeling most of the pain.

The biggest percentage drop was at Gray Television, an Atlanta-based group that owns stations in 31 markets across the country. Gray closed at $9.40 per share on March 17, down $1.11 per share or 10.6% each. Nexstar followed, closing at $33.38 per share, down 9.1% ($3.32 each). Sinclair was down 8.1% ($2.14 each) to $24.42 per share, followed by Media General, down 5.3% (94 cents), to $16.95; LIN Media, down 4.7% ($1.01) to $20.28; and Gannett, down 5 cents each (0.2%) to $27.91 per share.

Ryvicker’s downgrade is only the latest blow for station group stocks. The sector was hammered on March 6 after the FCC said it would move to eliminate coordinated retransmission consent negotiations. Since that time, the stocks are down an additional 13%.

Still, Ryvicker wrote that while the threat of additional regulation remains an overhang, there could be some good news for the stocks on the horizon.

“We could be positively surprised by the ultimate treatment of waivers; deals might get through post examination; STELA so far seems fair; Congress could step in; M&A could continue albeit at a slower pace; quadrennial review could loosen certain rules; and again we highlight the potential for significant capital returns,” she wrote.

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