Gray Television (GTN)

Local television broadcasting and media company Gray Television (NYSE:GTN) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 21.2% year on year to $749 million. On the other hand, next quarter’s revenue guidance of $774.5 million was less impressive, coming in 4.8% below analysts’ estimates. Its GAAP loss of $0.24 per share was 50% 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.

Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.

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

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Gray Television’s sales grew at a tepid 9.1% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. 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% annually.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Retransmission and Advertising, which are 46.2% and 47.4% of revenue. Over the last two years, Gray Television’s Retransmission revenue (affiliate and licensing fees) averaged 2.1% year-on-year declines while its Advertising revenue (marketing services) averaged 2.1% declines.

This quarter, Gray Television reported a rather uninspiring 21.2% year-on-year revenue decline to $749 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 25.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.5% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Gray Television’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 18.2% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

In Q3, Gray Television generated an operating margin profit margin of 13.6%, down 12.7 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 29.4% annually over the last five years while its revenue grew by 9.1%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q3, Gray Television reported EPS of negative $0.24, down from $0.86 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Gray Television’s full-year EPS of $0.41 to shrink by 18.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Gray Television has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.6%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Gray Television to make large cash investments in working capital and capital expenditures.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 7%, 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. On average, Gray Television’s ROIC decreased by 1.4 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Gray Television’s $6.35 billion of debt exceeds the $182 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $876 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. On the other hand, its revenue guidance for next quarter missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 5.7% to $4.36 immediately following the results.

Updated: December 4, 2025 at 9:52 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Gray Television, we’re out. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Gray Television’s Forecasted free cash flow margin for next year suggests the company will fail to improve its cash conversion, and its declining EPS over the last five years makes it a less attractive asset to the public markets.

Gray Television’s EV-to-EBITDA ratio based on the next 12 months is 0.5x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $6.40 on the company (compared to the current share price of $4.71).

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.