Lowering Estimates On Weak National, Direct Response Ad Outlook

New Sports Division Could Be A Home Run

Powering Through The Economic Headwinds

Strong Political Saves The Day

Michael Kupinski

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E.W. Scripps Company (The)

Investment Appraisal&nbsp;
The recently reported Q4 revenue of $680.9 million was roughly in line with our estimate of $684 million. Adj. EBITDA of $208.2 million was 2.7% below our estimate of $214 million. Figure #1 Q4 Variance illustrates the company&#8217;s results compared with our estimates. Notably, core advertising revenue was down 11% and&nbsp; Network revenue was down 9% in the quarter. The decline in core advertising was primarily attributed to political advertising displacement, while the drop in network revenue was the result of a weak national advertising market. National advertising is highly sensitive to the outlook for the economy and usually is weak in a rising interest rate environment.
A bright spot for the company in the coming quarters is the healthy growth of distribution revenue. Management expects distribution reven,ue to grow in the low-teens percentage range for full year 2023. The increase in distribution revenue is attributed to 75% of its TV households up for renewal in 2023.&nbsp;
We are lowering our Q1 and full year 2023 revenue and Adj. EBITDA forecasts. The revised forecasts are in anticipation of weak national advertising and direct response revenues, combined with the absence of political revenue. Our Q1 revenue estimate is lowered from $569.5 million to $531.5 million and Adj. EBITDA is being lowered from $120.3 million to $56.8 million. We are flowing through our Q1 adjustment to our full year 2023 revenue and adj. EBITDA estimates. As such, we are lowering our full year 2023 revenue estimate from $2.341 billion to $2.303 billion and our adj. EBITDA estimate from $456.8 million to $393.3 million, illustrated in Figure #2 Q1 &amp; Full Year 2023 Revisions. In addition, we are taking a more sober view of our full year 2024 estimates. We are lowering our full year 2024 revenue estimate from $2.661 billion to $2.626 billion and our adj. EBITDA estimate from $755.3 million to $647.3 million, illustrated in Figure #3 2024 Revisions. Our lowered 2024 estimates reflect the lower base business in 2023.
As of December 31, the company had $18 million in cash and $2.9 billion in long term debt, with net leverage of 4.7 times. The company achieved gross debt reduction of $290 million in 2022 and management reiterated that the companyâ€™s number one priority for the use of capital is to reduce leverage. Additionally, we have forecasted that the company will generate $369 million in operating cash flow in 2023. In our view, the company has sufficient liquidity and cash flow generating ability to navigate the current economic headwinds. However, given our lowered adj. EBITDA expectations, the company&#8217;s debt to cash flow in 2023 is expected to climb to 7.3 times, before lowering to near 4 times in 2024. As such, we are lowering our fundamental assessment from 4.0 checks to 3.5 checks.
We are lowering our price target from $23 to $17&nbsp;to reflect our lowered 2023 and 2024 adj. EBITDA forecast. Near current levels, the SSP shares trade at 7.4 times enterprise value to our blended 2023/2024 adj. EBITDA forecast.&nbsp;The valuation is at the low end of the companyâ€™s recent historic 10-year trading averages of 9.4 to 14.5 times. Our price target of $17&nbsp;reflects a target multiple of 8 times blended 2023/2024 cash flow, which would be below the companyâ€™s 10 year average historic trading range. In our view, the downside risk in the shares appears limited, with the shares largely reflecting recessionary type valuations. As such, we believe that there is a favorable risk/reward relationship with the shares. The key catalyst toward higher stock valuations will be when the Fed either pauses or eases interest rates, a sign that economic and advertising prospects may improve. The shares are rated Outperform.
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Figure #1 Q4 Variance
<img decoding="async" src="https://noblelinx.com/x/research/images/reports/SSP_20230227_25636-01.jpg" style="width: 390px;height: 782px" />
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Figure #2 Q1 &amp; Full Year 2023 Revisions
<img decoding="async" src="https://noblelinx.com/x/research/images/reports/SSP_20230227_25636-02.jpg" style="width: 430px;height: 547px" /> 
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Figure #3 2024 Revisions
<img decoding="async" src="https://noblelinx.com/x/research/images/reports/SSP_20230227_25636-03.jpg" style="width: 451px;height: 823px" />

E.W. Scripps Company (The) (SSP)

Lowering Estimates On Weak National, Direct Response Ad Outlook

Fundamental Analysis:

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Lowering Estimates On Weak National, Direct Response Ad Outlook (SSP)

New Sports Division Could Be A Home Run (SSP)

Powering Through The Economic Headwinds (SSP)

Strong Political Saves The Day (SSP)

Inbox Intel from Channelchek.