09.09.2010 03:00 PM
Morningstar Drops Coverage of Gray Television
CHICAGO, ILL.: Investment research firm Morningstar announced this week it was dropping coverage of Gray Television

“Gray’s financial health is poor and the possibility remains that the firm’s shares have little to no value,” Morningstar said. “However, we now believe that the firm will most likely meet its financial obligations. The firm covered its interest expense with earnings before interest, taxes, depreciation, and amortization 1.1 times in fiscal 2009, but we project that the interest coverage ratio will improve to 1.3 times in 2010.”

Gray shares (NYSE: GTN) traded throughout today at around $2. The pure-play TV group posted revenues of $75.6 million for its 36 stations during the second quarter this year. Net income was $534,000 compared to a loss of $6.6 million a year ago. Net loss to stockholders, after the payment of $6.4 million in dividends, was $5.9 million or 11 cents a share.
Gray finished 2Q10 with $15.7 million in cash and long-term debt of $846 million.
“Following an especially severe downturn, a modest recovery has begun in the TV industry as advertising has picked up, driven particularly by improved demand from auto customers and strong political ad spending during the current election year,” Morningstar said. “This has boosted the top line for the firm, with sales for the first half of 2010 expanding by 16 percent compared to the same period a year ago. In addition, free cash flow has rebounded since the beginning of 2009. Gray must still contend with a substantial debt burden while also operating in a competitive and fragmented industry. As of today, we estimate a 35 percent probability of financial distress to the firm.”
-- Deborah D. McAdams

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