Digital Shift Will Fail To Offset Eroding Broadcast Audiences

Key Takeaways

• The transition to digital and streaming is eroding traditional broadcast audiences, creating challenges for future advertising revenue and long-term earnings stability.
  
• Heavy reliance on political advertising and difficulties in digital transformation raise volatility and uncertainty around sustainable revenue and margins.
  
• Expansion in digital content, strong local news demand, industry deregulation, operational efficiencies, and disciplined capital allocation position TEGNA for growth, stability, and shareholder value.

Catalysts

Operates as a journalism company in the United States.

• Despite management's focus on digital revenue growth, the shift of viewers from traditional broadcast TV to streaming continues to erode core broadcast audiences, which is expected to weigh on future advertising revenue and limit long-term earnings growth.
  
• Ongoing changes in advertiser behavior-specifically, the migration of ad budgets away from linear TV to digital and social platforms-are anticipated to reduce the total addressable market for traditional broadcast ads, potentially leading to sustained net margin pressure.
  
• The company's emphasis on political advertising and cyclical events as key revenue drivers heightens earnings volatility, and periods between major election cycles are likely to expose weak spots in recurring revenue and EBIT trends.
  
• Execution risk in the digital transformation, including dependence on partnerships like the now-reduced Premion reseller relationship, increases uncertainty around TEGNA's ability to scale digital revenues fast enough to offset the structural decline in legacy channels, threatening medium-term revenue and margin projections.
  
• Trends in audience demographics skewing younger are expected to intensify the long-term decline of local TV viewership, further challenging both top-line revenues and the sustainability of current earnings multiples.

TEGNA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TEGNA's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.9% today to 13.3% in 3 years time.
• Analysts expect earnings to reach $400.8 million (and earnings per share of $3.39) by about August 2028, down from $452.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from 7.5x today. This future PE is lower than the current PE for the US Media industry at 21.7x.
• Analysts expect the number of shares outstanding to decline by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.26%, as per the Simply Wall St company report.

TEGNA Future Earnings Per Share Growth

Risks

• TEGNA's strategic expansion in digital content and CTV/OTT advertising-including the rapid rollout of 100+ daily streaming news hours and continued double-digit growth in owned digital properties-could position the company to capture new, growing revenue streams, offsetting declines in traditional ad sales and positively impacting long-term revenue and EBITDA margins.
  
• Secular demand for local, trusted news-highlighted by robust engagement during catastrophic events and community storytelling-supports stable or rising audience levels for TEGNA's local news platforms, helping to sustain advertising and retransmission revenue and provide increased earnings predictability.
  
• Ongoing industry deregulation, such as potential relaxation of FCC ownership limits and positive court rulings, creates new opportunities for TEGNA to participate in local broadcast consolidation as either a buyer or seller, which could enable EPS growth, margin expansion, and improved shareholder value through disciplined M&A activity.
  
• TEGNA's aggressive cost-cutting, automation, and AI implementation have already reduced non-GAAP expenses and are expected to deliver $90–$100 million in annualized core savings by the end of 2025, directly enhancing net margins and operational leverage even during periods of cyclical revenue weakness.
  
• The company's strong balance sheet, disciplined capital allocation, and commitment to returning 40–60% of adjusted free cash flow to shareholders provide resilience and flexibility for investment in growth initiatives and opportunistic share repurchases, supporting long-term earnings and share price stability.

Valuation

• The analysts have a consensus price target of $21.333 for TEGNA based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $400.8 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 8.3%.
• Given the current share price of $21.05, the analyst price target of $21.33 is 1.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.