TEGNA (TGNA)

Broadcasting and digital media company TEGNA (NYSE:TGNA) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 4.8% year on year to $680 million. On the other hand, next quarter’s revenue guidance of $671.3 million was less impressive, coming in 0.6% below analysts’ estimates. Its non-GAAP profit of $0.37 per share was 12.9% above analysts’ consensus estimates.

Company Overview

Spun out of Gannett in 2015, TEGNA (NYSE:TGNA) is a media company operating a network of television stations and digital platforms, focusing on local news and community content.

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 and digital media sector include Nexstar Media (NASDAQ:NXST), Sinclair (NASDAQ:SBGI), and Gray Television (NYSE:GTN).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, TEGNA’s 4.5% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector and is a tough starting point 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. TEGNA’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.8% annually.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Subscription and Advertising, which are 55.8% and 42.1% of revenue. Over the last two years, TEGNA’s Subscription revenue (access to content) averaged 2.9% year-on-year declines while its Advertising revenue (marketing services) averaged 3.9% declines.

This quarter, TEGNA reported a rather uninspiring 4.8% year-on-year revenue decline to $680 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for a 5.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 9.1% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

TEGNA’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 24.4% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q1, TEGNA generated an operating profit margin of 16%, down 3.2 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.

TEGNA’s EPS grew at a solid 15.5% compounded annual growth rate over the last five years, higher than its 4.5% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

In Q1, TEGNA reported EPS at $0.37, down from $0.45 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 TEGNA’s full-year EPS of $3.04 to shrink by 31.5%.

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.

TEGNA has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 17.7% over the last two years, quite impressive for a consumer discretionary business.

TEGNA’s free cash flow clocked in at $54.68 million in Q1, equivalent to a 8% margin. The company’s cash profitability regressed as it was 5.3 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict TEGNA’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 19.3% for the last 12 months will decrease to 12.7%.

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).

TEGNA historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 12.1%, 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, TEGNA’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.

TEGNA reported $716.6 million of cash and $3.09 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $893.5 million of EBITDA over the last 12 months, we view TEGNA’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $71.71 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see TEGNA beat analysts’ EPS expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its Subscription revenue missed. Overall, this print had some key positives. The stock remained flat at $16.80 immediately after reporting.

Updated: May 15, 2025 at 10:51 PM EDT

Before investing in or passing on TEGNA, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies helping consumers, but in the case of TEGNA, we’re out. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, 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.

TEGNA’s P/E ratio based on the next 12 months is 8.4x. 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 $20.80 on the company (compared to the current share price of $17.41).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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