Gray Television (GTN)

Local television broadcasting and media company Gray Television (NYSE:GTN) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 5% year on year to $782 million. Its GAAP loss of $0.23 per share was 52.6% 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).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Gray Television grew its sales at a 11% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

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 recent performance shows its demand has slowed as its revenue was flat over the last two years.

Gray Television also breaks out the revenue for its most important segments, Retransmission and Advertising, which are 48.5% and 44% of revenue. Over the last two years, Gray Television’s Retransmission (affiliate and licensing fees) and Advertising (marketing services) revenues were flat.

This quarter, Gray Television’s revenue fell by 5% year on year to $782 million but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to decline by 10.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

Gray Television’s operating margin has been trending up over the last 12 months and averaged 18.2% over the last two years. On top of that, its profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

In Q1, Gray Television generated an operating profit margin of 11.8%, down 3.3 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Gray Television’s EPS grew at an unimpressive 3.1% compounded annual growth rate over the last five years, lower than its 11% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q1, Gray Television reported EPS at negative $0.23, down from $0.79 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 to perform poorly. Analysts forecast its full-year EPS of $2.31 will invert to negative negative $0.63.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Gray Television has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.3%, 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.

Gray Television’s free cash flow clocked in at $142 million in Q1, equivalent to a 18.2% margin. This result was good as its margin was 13.9 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict Gray Television’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 13.6% for the last 12 months will decrease to 3.9%.

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 7.6%, 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 1.2 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 $6.30 billion of debt exceeds the $210 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $1.11 billion 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.

We were impressed by how significantly Gray Television blew past analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its Retransmission revenue missed. Zooming out, we think this was a mixed print. Investors were likely hoping for more, and shares traded down 1.2% to $3.67 immediately following the results.

Updated: July 9, 2025 at 10:44 PM EDT

Are you wondering whether to buy Gray Television or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We cheer for all companies serving everyday consumers, but in the case of Gray Television, we’ll be cheering from the sidelines. First off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its strong operating margins show it’s a well-run business, the downside is its Forecasted free cash flow margin suggests the company will ramp up its investments next year. On top of that, its projected EPS for the next year is lacking.

Gray Television’s EV-to-EBITDA ratio based on the next 12 months is 1x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $5.10 on the company (compared to the current share price of $5.60).