Gray Television (GTN)

Local television broadcasting and media company Gray Television (NYSE:GTN) reported Q4 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 24.2% year on year to $792 million. The company expects next quarter’s revenue to be around $762.5 million, close to analysts’ estimates. Its GAAP loss of $0.24 per share was 26.5% above analysts’ consensus estimates.

Company Overview

Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.

The Consumer Discretionary sector, by definition, is made up of companies selling non-essential goods and services. When economic conditions deteriorate or tastes shift, consumers can easily cut back or eliminate these purchases. For long-term investors with five-year holding periods, this creates a structural challenge: the sector is inherently hit-driven, with low switching costs and fickle customers. As a result, only a handful of companies can reliably grow demand and compound earnings over long periods, which is why our bar is high and High Quality ratings are rare.

Broadcasting companies produce and distribute television and radio content, generating revenue primarily through advertising and, in some cases, retransmission fees (payments cable and satellite operators make to carry local channels). Tailwinds include resilient demand for live sports and event programming, which commands premium ad rates, and political advertising during election cycles. Headwinds, however, are substantial: secular cord-cutting (consumers canceling traditional pay-TV subscriptions) is shrinking linear audiences, digital platforms are capturing an increasing share of advertising budgets, and content production costs continue to rise. Regulatory scrutiny over media consolidation and spectrum ownership further constrains strategic flexibility.

Competitors in the local television broadcasting industry include Nexstar Media (NASDAQ:NXST), Sinclair (NASDAQ: SBGI), and TEGNA (NYSE: TGNA).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Gray Television grew its sales at a weak 5.4% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Gray Television’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.9% annually.

Gray Television also breaks out the revenue for its most important segments, Retransmission and Advertising, which are 49.5% and 42.3% of revenue. Over the last two years, Gray Television’s Retransmission revenue (affiliate and licensing fees) was flat while its Advertising revenue (marketing services) averaged 6.2% year-on-year declines.

This quarter, Gray Television’s revenue fell by 24.2% year on year to $792 million but beat Wall Street’s estimates by 1.5%. Company management is currently guiding for a 2.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.9% over the next 12 months. While this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Gray Television’s operating margin has been trending down over the last 12 months and averaged 18.4% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

In Q4, Gray Television generated an operating margin profit margin of 14.6%, down 16.5 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Gray Television, its EPS declined by 18.9% annually over the last five years while its revenue grew by 5.4%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q4, Gray Television reported EPS of negative $0.24, down from $1.59 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Gray Television’s full-year EPS of negative $1.42 will flip to positive $2.14.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Gray Television has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.4%, lousy for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Gray Television historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.3%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Gray Television’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Gray Television’s $5.81 billion of debt exceeds the $368 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $653 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Gray Television could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Gray Television can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Gray Television beat analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 3.1% to $4.92 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Gray Television.

Gray Television falls short of our quality standards. While its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Gray Television’s P/E ratio based on the next 12 months is 1.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $6.40 on the company (compared to the current share price of $4.92).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.