Why Price Plunge Dose Not Spell Trouble For TEGNA (TGNA)

Shares of TV broadcasting station operator TEGNA Inc. (NYSE:TGNA) have lost more than 35% since the last earnings report. However, this price plunge primarily reflects the divestitures that TEGNA has completed in this time frame.

The company’s actions to spin off Cars.com and sell most of its controlling stake in job search website CareerBuilder have led to a sharp fall in its share price. Not only this, these have also pushed the Zacks Consensus Estimate for its current year earnings and revenues downward.

In fact, TEGNA’s stock lost value after a pro rata distribution of all outstanding common shares of Cars.com to its stockholders, who were also made to retain their shares of the parent company.

Details of the Strategic Actions

The Cars.com spin-off, which was closed on Jun 1, made TEGNA create two publicly traded companies -- TEGNA, an innovative media company with the largest broadcast group among the major network affiliates in the top 25 markets and Cars.com, a leading digital automotive marketplace.

The spin-off was completed through a pro rata distribution of all outstanding shares of Cars.com to TEGNA stockholders of record at the closure of business on May 18, 2017. Stockholders have retained their TEGNA shares and received one share of Cars.com for every three shares of TEGNA they owned on the record date.

Further, on Jun 19, TEGNA agreed to sell a 40.5% stake in CareerBuilder for $250 million. An investor group led by Apollo Global Management and the Ontario Teachers’ Pension Plan Board will buy the stake. After the sale, the company will have only a 12.5% stake in CareerBuilder. The web portal -- a global leader in human capital solutions -- provides services ranging from labor market intelligence to talent management software and other recruitment solutions.

In addition to TEGNA, two more companies, namely Tribune Media Co. (NYSE:TRCO) and McClatchy Co. (NYSE:MNI) have also sold their stakes in CareerBuilder.

Bottom Line

TEGNA’s actions to shed its non-core digital businesses will likely generate more value for its investors in the long run. The Cars.com spin-off will help both parties to take advantage of differentiated opportunities in the rapidly evolving broadcast TV and digital landscapes. Both entities can fine tune their balance sheets and capital return policies to their specific business characteristics. This will likely increase growth opportunities and appropriate market valuations.

Also, TEGNA will be able to invest the proceeds from the CareerBuilder sale in its core businesses. At the same time, the remaining 12.5% stake will enable the company to tap the potential in the job search market.

However, the U.S. broadcast TV industry has long been grappling with declining advertising revenues and macroeconomic volatility. In addition, the broadcast TV industry is categorized as an intensely competitive one. We believe these are primarily why the stock currently carries a Zacks Rank #5 (Strong Sell).

Stock to Consider

Investors interested in the Broadcast Radio and Television industry, may consider Gray Television Inc. (NYSE:GTN) . The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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