Gray Television ( NYSE: GTN ) shares fell on Wednesday as Wells Fargo downgraded the broadcast company, noting its financial position may be in worse shape than its peers.
Analyst Steven Cahall lowered his rating on Gray Television ( GTN ) to underweight from overweight and cut the price target to $7 from $25, pointing out that the company has more leverage than its competitors due to previous station acquisitions made last year.
"While these offer strategic benefits, the timing is terrible, as industry trends have soured, including a '22 political miss, weaker core ads from recession, worsening cord cutting, and its Assembly capex build," Cahall wrote in a note to clients.
The analyst added that Gray Television ( GTN ) also has dividends for common and preferred stock, so that along with its core spending needs, the cash used to pay down debt will be "modest" next year, despite the fact net leverage is likely to rise.
Gray Television ( GTN ) shares fell more than 4% to $9.81 in premarket trading.
In addition, Cahall noted that he expects Gray Television ( GTN ) to have a leverage ratio of 5.4 times at the end of 2022, down modestly from 2021. But by the end of 2023, it's likely the ratio rises to 5.6 as a result of likely lower EBITDA and free cash flow levels.
"With leverage moving up and estimates coming down, we think GTN will be in a difficult equity position," Cahall added. "Deratings on levered stocks hit equity values harder, and [less than] $1bn in equity with [more than] $6bn in net debt makes the downside risk to the equity above peers' in Media and Broadcast."
Last week, Gray Television ( GTN ) plunged 33% in the wake of a weak third-quarter results and guidance for the next period that was well below Wall Street's view .
Analysts are by and large almost universally positive on Gray Television ( GTN ). It has a STRONG BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a STRONG BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates GTN a HOLD .
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Gray Television drops as Wells Fargo hits it with rare double downgrade