NEW YORK: Shares of Sinclair (NASDAQ: SBGI) today jumped 4 percent on an upgrade from Wells Fargo. The investment bank moved SBGI to Outperform, “given positive commentary on broadcast TV trends from both private and public contacts coupled with increasing auto sales,” wrote a trio of Wells Fargo analysts. The upswing in auto spending is expected to persist “well beyond” 2011, coupled with a “windfall” from Verizon and AT&T on iPhone advertising.
“We are incrementally positive on the broadcast space and pick SBGI as the name to own,” Marci Ryvicker, Timothy Schlock and Stephen Bisson wrote. this, despite a 17 percent run to date versus 5 percent for the S&P 500, given SBGI’s lowest leverage in 10 years, the likely return of cash via a recurring dividend, and $2 to $3 a share of “hidden value” that may be monetized this year. Sinclair is also the only broadcast group to “essentially be done with reverse comp negotiations,” i.e., payments made to the networks.
Wells Fargo upgraded SBGI from Market Perform to Outperform and raised its target price range from between $8 and $9 to between $15 and $17. Estimated earnings per share for 2010 were left at 94 cents, and lowered for 2011 to 84 cents to incorporate reverse compensation payments to Fox. SBGI is expected to pay Fox in the range of $14 million to $16 million a year for its 20 affiliate stations, and another $5 million to $6 million to ABC for nine affiliates.
SBGI shares reached $9.94 by mid-afternoon, up from a Monday close of around $9.57. The company will report 2010 full-year and fourth-quarter results Wednesday.
-- Deborah D. McAdams
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