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TEGNA (TGNA) Estimates Record Top-Line Growth in Q4 Earnings

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TEGNA (TGNA - Free Report) shares jumped almost 9% to close at $15.45 on Jan 6 after it announced record preliminary estimates for the fourth quarter of 2020. The company also announced full-year 2020 initial results and provided a glimpse of 2021’s growth trajectory.

Moreover, TEGNA’s board authorized the renewal of its share repurchase program. The authorization now allows the company to repurchase shares up to $300 million over the next three years. The program was suspended in March 2019 (following TEGNA’s acquisition of the stations arising out of Nexstar-Tribune divestiture) to prioritize debt repayment.

Markedly, TEGNA shares have been up 25.2% in the past three months, outperforming the Zacks Broadcast Radio and Television industry’s rally of 7.2%. The outperformance can be attributed to record political advertising revenues.

In third-quarter 2020, TEGNA reported political revenues of $116.5 million (15.8% of revenues) compared with $8.1 million in the year-ago quarter.

TEGNA Inc. Price, Consensus and EPS Surprise

Political Ad Spending Drives Q4 Revenues

The continued momentum in political ad spending seems to have driven fourth-quarter top-line growth. TEGNA projects revenues between $932 million and $937 million, up 34-35%, year over year. Apart from record political ad revenues of roughly $264 million, continued subscription revenue growth also drove results.

Markedly, TEGNA successfully repriced nearly 35% of its subscribers at leading Big Four affiliate rates. Moreover, multi-year affiliation renewal with Comcast (CMCSA - Free Report) division NBC improves top-line growth visibility for this Zacks Rank #4 (Sell) company.

TEGNA also signed a multi-year retransmission consent agreement with AT&T (T - Free Report) in early December to provide 64 TEGNA-owned local broadcast stations to customers of AT&T’s video platforms.

Further, in November, TEGNA completed an update of its stations’ over-the-top (OTT) streaming applications on Roku (ROKU - Free Report) to enhance viewer experience.

For the fourth quarter, adjusted EBITDA is expected to be in the range of $424-$429 million, which is a record. Adjusted EBITDA is projected to grow in the 85-88% range.

The Zacks Consensus Estimate for fourth-quarter 2020 earnings has increased 17% to $1.03 per share in the past 60 days, indicating growth of 119.5% from the figure reported in the year-ago quarter.

Initial 2020 Highlights and 2021 Glimpse

For 2020, TEGNA expects revenues between $2.93 billion and $2.94 billion, up 27-28% over 2019, driven by growth in political and subscription revenues, as well as contributions from stations acquired in 2019.

TEGNA’s over-the-top ad business Premion is expected to finish 2020 with revenues of more than $145 million, up more than 40% over 2019. The company expects similar percentage growth in 2021 driven by increased viewing of streaming services.

Adjusted EBITDA is expected in the range of $1.02 billion and $1.03 billion, up 44-45% year over year, driven by approximately $445 million of high-margin political advertising and growth in net subscription profits. This fully offset advertising and marketing services disruptions caused by the coronavirus pandemic.

Moreover, free cash flow is now expected to be above or at the high end of the previous guidance of 20-21% provided on Nov 9, 2020, for the two-year period ended Dec31, 2020.

Additionally, net leverage is expected to end the year at or below 4.0x, better than the year-end 2020 guidance of 4.1x.

Further, for 2021, TEGNA expects net subscription profits to grow in the mid-to-high twenties percentage range. Advertising and Marketing Services revenues are expected to benefit from improving trends, particularly in the automotive market. 

Cost Savings to Aid Profitability

For 2021, TEGNA expects its cost reduction initiative to boost adjusted EBITDA and free cash flow. The company now expects to achieve $50 million in cost savings in 2021, several quarters earlier than expected.

As a result, TEGNA projects all other operating expenses except programming and Premion costs in 2021 to be flat or slightly lower than 2020.

Moreover, net leverage ratio is expected to be mid 3x for 2021.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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