Broadcast Sector: Improved Profitability, Undervalued Stocks

Though TV stations continue to report hefty financial gains in recent periods, broadcasters are still trading below the stock market as a whole.

"The sector appears undervalue by around 15%," says Michael Alcamo, president of media investment firm M.C. Alcamo & Company. In fact, Alcamo was a bit shocked looking at the results versus the a year ago. "The results surprised us -- trading multiples were significantly lower than a year previously, possibly reflecting investor caution or uncertainty," he notes. Looking at six pure-play publicly-traded broadcast TV station companies, Alcamo says selling cash-flow multiples -- earnings before interest, depreciation, taxes and amortization -- are down 20% from a year ago at the end of 2010. Currently at a 8.7 times rate, versus 10.7. Cash flow multiples are down 10% from a 9.6 number a three months ago. The six companies include Belo Corp., Gray Television, Nexstar Broadcasting, Sinclair Broadcast Group, LIN Television and Fisher Communications Group. Analyzing an index of these companies shows stock prices at a 53% index to the S&P 500 Index of 98%.