/ 09.09.2010 12:00AM
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