Ryvicker: Sinclair Is Being Undervalued

Marci Ryvicker, who covers media for Wells Fargo Securities, said today that Wall Street is being too conservative in its evaluation of Sinclair Broadcast Group.

“We are raising estimates and our valuation range,” she wrote. “There is no question there have been a lot of moving parts to the SBGI story given three nice sized acquisitions — all of which closed within the last 12 months. As a result of the many changes, we have been fielding a lot of calls as to what the “new” Sinclair will look like in 2013 and beyond.

“At the end of the day, we think Street estimates are too low on just about every metric. We raise our 2012/2013 revenue and EBITDA estimates, which result in 2012 EPS of $1.71 vs. our prior $1.65 and consensus of $1.64 and 2013E EPS of $1.39 vs. our prior $1.23 and consensus of $1.30. With the changes to our model, our five-year DCF also suggests a higher valuation range, of $16-$18 vs. our prior $14-$16. Our new range represents a 7x blended EBITDA (2013/2014) multiple vs. the current <6x.

“SBGI has purchased 23 stations for approximately $1.1 billion in the last 12 months. Recall that SBGI has closed four separate transactions, consisting of Four Points (7 stations for $200 million), Freedom (8 stations for $385 million), Newport (7 stations for $467 million and Bay-TV (1 station, $40 million) — all of which we believe to have been purchased at PF multiples ranging between 5.7x and 7.2x. Consistent with what we have seen in the industry, synergies are both top- and bottom-line driven, resulting from higher retrans consent and lower corporate overhead and syndication costs.

“Importantly, these transactions have not altered SBGI’s leverage profile,” she wrote.
As a result, she continued, she is raising revenue and EBITDA estimates. “At the end of the day, our 4Q revenue and EBITDA [estimates] move to $319,100,000 and $139,800,000 from $305,000,000 and $132,800,000 [respectively]. Our 2012 revenue and EBITDA estimates move to $1.057 billion and $408,600,000 from $1.043 billion and $401,600,000; and our 2013 revenue and EBITDA estimates move to $1.172 billion and $415,100,000 from $1.136 billion and $404.700,000,” respectively.

She added that she sees free cash flow generation remaining robust. “With all of the new stations, we now see SBGI generating approximately $220 million in free cash flow on a blended basis (even and odd numbered years) for the foreseeable future, which represents a 24% FCF yield on today’s closing price of $11.61.