Political And Digital Trends Will Advance Local Media Amid Risks

Key Takeaways

• Strong demand for political advertising and local content, alongside investment in sports coverage, are driving sustained revenue growth and expanding Gray Media’s advertiser base.
  
• Enhanced digital platforms, industry consolidation, and a favorable regulatory environment are increasing margins, diversifying revenue streams, and supporting continued operational efficiency.
  
• Structural pressures from declining core advertising, high debt, rural market exposure, political ad dependence, and rising costs threaten Gray Media’s revenue growth and operating margins.

Catalysts

A multimedia company, owns and/or operates television stations and digital assets in the United States.

• Sustained strong demand for political advertising is leading to record revenue even in non-election years. This is underpinned by heightened political polarization and increased local election activity, which are boosting ad spend in Gray Media’s local markets and setting up for potentially outsized gains in future cycles, driving long-term revenue growth.
  
• Accelerating consumption of local content due to suburban and rural demographic shifts is strengthening Gray Media’s core audience. This broader viewership base underpins robust ratings for local news and sports, positioning the company to capture growing local and regional advertising budgets, with upside to both revenue and pricing power.
  
• Gray’s strategic push into local sports content has rapidly achieved 80% market coverage, making its stations more essential destinations for engaged local viewers and attracting incremental ad spend from both local and national sponsors. This elevates the long-term value of Gray’s content portfolio and is likely to support outsized, durable revenue growth and advertiser retention.
  
• Increased investment in digital platforms and streaming initiatives is unlocking new multi-platform ad formats and higher-margin inventory. As digital transitions to a larger share of the business, this is set to improve the company’s net margins and diversify revenue streams beyond traditional TV, supporting long-term EPS expansion.
  
• Industry consolidation opportunities, improved regulatory tone, and continued disciplined debt reduction equip Gray with the ability to pursue scale-driven efficiencies, further acquisitions, and strategic duopolies in attractive markets. These factors combine to enhance net margins, leverage operating synergies, and drive higher return on equity as the company grows.

Gray Media Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Gray Media compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Gray Media's revenue will decrease by 3.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 6.3% today to 0.3% in 3 years time.
• The bullish analysts expect earnings to reach $8.7 million (and earnings per share of $0.09) by about July 2028, down from $226.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 112.2x on those 2028 earnings, up from 2.1x today. This future PE is greater than the current PE for the US Media industry at 20.2x.
• Analysts expect the number of shares outstanding to grow by 1.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Gray Media Future Earnings Per Share Growth

Risks

• Gray Media’s core advertising revenue declined 8 percent year-over-year, with softness in major categories like automotive, restaurants, and department stores, indicating long-term secular pressure on advertising revenue as ad dollars continue shifting to digital and streaming platforms.
  
• The company faces high leverage with a total leverage ratio of 5.48 times EBITDA, and though management is prioritizing debt reduction, the sizeable outstanding debt from past acquisitions may limit future financial flexibility and constrain net margins due to elevated interest expenses.
  
• Gray Media’s heavy exposure to mid-sized and rural markets, sectors subject to demographic and economic stagnation, raises risk of structurally slower long-term revenue growth, especially as major advertisers increasingly prioritize digital campaigns targeting younger, urban audiences.
  
• A significant portion of Gray Media’s earnings is tied to volatile political advertising cycles, which management acknowledges are highly unpredictable, leading to instability in both top-line revenue and EBITDA margins between political and non-political years.
  
• Ongoing increases in retransmission and content acquisition costs, compounded by pending affiliate negotiations and the risk of unfavorable network terms, threaten to compress operating margins for Gray Media at a time when industry-wide linear TV viewership continues to decline.

Valuation

• The assumed bullish price target for Gray Media is $7.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gray Media's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $8.7 million, and it would be trading on a PE ratio of 112.2x, assuming you use a discount rate of 11.6%.
• Given the current share price of $4.92, the bullish analyst price target of $7.0 is 29.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.