It's a political year, which is good news for the ad sellers at the broadcasting companies.
With a highly partisan environment, the return of Super PACS, a couple of billionaires in the mix and a lot on the line for both parties, it's likely to be a record political cycle in terms of ad spend, Wells Fargo media industry analyst Steven Cahall said in recent a note.
"Broadcasters were universally bullish on the political prospects as funding is showing up earlier and in bigger sums," Cahall wrote.
TV, Radio Both Benefit
Cahall said TV and radio broadcasters will both benefit, and broadcasting companies should trade well at least through the third quarter on the ad bump.
"And, we don’t think digital will be a threat," he said.
Privately-provided data suggests broadcast TV political ad spending of about $3.3 billion for the 2020, which would be up 8% from 2018, and Cahall said that's is probably the consensus projection.
But, he noted, Wells Fargo models are already at 11% over 2018, suggesting other models may be too conservative.
Companies with a heavy presence in certain states - including Florida, Pennsylvania and New Hampshire, should benefit more because of significant spending there.
Companies To Watch
Gray Television, Inc. (NYSE: GTN), which owns 145 TV stations across the country, has the highest percentage of revenue from political ads in 2020 at about 13%. "It's our preferred name," Cahall said. Gray should pull in about 15% of the spend.
Tegna Inc. (NYSE: TGNA), which owns more than 60 stations, is expected to get about 11% of its revenue from political ad sales and could benefit from an Arizona Senate race, and is the other company best-positioned to benefit from the cycle, along with Gray, Cahall said.
Nextstar Media Group Inc. (NASDAQ: NXST) is likely to be the biggest single recipient of ad dollars based on absolute sales, at about $466 million, or about 22% of the total spend, but not as high as Gray and Tegna in terms of its percentage of total revenue coming from political ads.
Sinclair Broadcast Group Inc (NASDAQ: SBGI) is expected to have nearly $300 million in revenue from political ads or about 13% of the spend, but is less attractive due to a lower relative reliance politics after its purchase of several regional sports networks, Cahall said.
E. W. Scripps Co. (NASDAQ: SSP) is expected to have more than 10% of the ad spend at about $233 million. Also seeing additional revenue from political ad spend are expected to be ViacomCBS Inc (NASDAQ: VIAC), Fox Corp (NASDAQ: FOXA) and on the radio side, iHeartMedia Inc (NASDAQ: IHRT) and Entercom Communications Corp. (NYSE: ETM).