You may know E.W. Scripps Company (NYSE: SSP) as the business that runs the popular Scripps National Spelling Bee, but this Cincinnati-based company is actually a large media business that owns numerous television stations, newspapers and digital properties. It’s also been a great holding for investors—its stock price is up about 50% year-to-date.
Despite the run up, 83% of analysts who cover the company still think the stock has legs. Edward Atorino, an analyst with Benchmark Research, expects big things from the company in 2014.
First of all, America’s going into an off-year election, so it should make a bundle off political advertisements. It’s also done a good job enhancing its newspaper offerings with special print and digital products.
Michael Kupinski, director of research with Noble Financial Capital Markets, expects to see more mergers and acquisition activity in 2014. In an Aug. 6 note, he wrote that E.W. Scripps has $218.1 million in cash and $188.2 million in long-term debt. It can use that money to buy other operations.
“We believe that the company will build its station portfolio,” he says. “Such one-off acquisitions would allow the company to maintain a pristine balance sheet, while maintaining fire power for future acquisitions.”
The big risk with this business is that no one is quite sure where the media sector is headed. Atorino says that E.W. Scripps has cut costs, added products and made other moves to position itself for an industry turnaround.
“Though, as is the case with other newspapers,” he says, “the timing and strength are unclear.”
For 2013, Atorino projects an 8% decline in total revenues thanks to a 7% drop in advertising. Earnings per share are expected to fall by a whopping 80% from $0.86 a share to $0.17.
But the company’s fortunes should improve next year. He’s projecting revenues to rise by 11% to $919 million led by a 23% increase in television advertising. EPS will hit $0.93, which would be a 98.5% increase over 2013.
If it pans out, investors should see huge gains, especially considering how cheap, from a valuation basis, the stock is today.
It’s currently trading at 5.5 times enterprise value-to-estimated 2014 cash flow, which is below its group average of 7.2 times.
That multiple will grow, says Kupinski. “We believe that the multiple should expand to reflect the company’s growth prospects, both internally and through possible acquisitions,” he writes.
The stock is currently trading at about $15.6 a share, but Atorino thinks it can hit $18 over the next 12 months, while Kupinski expects it to climb to $22.
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