After Bankruptcy, This Company Wastes No Time in Entering a New Market
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Since its recent emergence from bankruptcy, Tribune Company (NASDAQOTH: TRBAA) has been a popular topic of discussion among investors, market-watchers and media professionals. Once seen as a leading indicator of the print media industry's decline, Tribune has somehow avoided its preordained fate. Far from being a casualty of the new-media landscape, the company is in the midst of an aggressive expansion that could turn it into one of the United States's largest broadcasters. Meanwhile, it continues to compete with "old media" companies like New York Times Company (NYSE: NYT) and the Washington Post Company (NYSE: WPO) online and in print.
Tribune Company's turnaround has been remarkable, but it is not out of the woods yet. Moreover, its transformation into a hybrid "new-old" media company will not be straightforward. While investors should be encouraged by its recent moves and heartened by the secular tailwinds that appear to be emerging in its core areas of operation, this name is not for the faint of heart.
About Tribune Company and its Closest Competitors
Tribune Company competes with more than a dozen media companies that operate in North America. For the purposes of this financial comparison, a look at perennial rivals like the Washington Post Company and NYT will prove instructive. Of course, it is crucial to note that neither competitor has faced bankruptcy in the recent past.
Tribune and Washington Post have roughly the same valuations: The former company's market capitalization of $3.4 billion compares with a slightly larger $3.7 billion figure for the Washington, D.C.-based firm. However, Tribune Company's enterprise value of over $14 billion is substantially larger than Washington Post's $3.3 billion valuation. Meanwhile, NYT has respective valuations of $1.8 billion and $1.7 billion.
In 2012, a bankruptcy-hobbled Tribune Company posted a dismal loss of $2.2 billion on revenues of $4.8 billion. This compares to a narrow profit of about $38 million on revenues of $4 billion for Washington Post and a more impressive take of $154.5 million on $2 billion for NYT. Meanwhile, Tribune Company has a narrowly positive free cash flow figure of about $90 million and a price-to-sales ratio of .71. For comparison, NYT has free cash flow of just $1.4 million and a price-to-sales figure of .9. With free cash flow of nearly $468 million and a price-to-sales ratio of .91, Washington Post is in slightly better shape than its two competitors.
Recent Stock-Price Performance
Since emerging from bankruptcy in early 2013, Tribune Company has narrowly exceeded the performance of the broader stock market. From a low near $48 per share during the immediate aftermath of its post-bankruptcy offering, the company currently sits near its all-time high of about $61 per share. With favorable technical indicators and strengthening financial indicators, there is no reason to doubt its ability to continue this performance. However, it should be noted that both of Tribune Company's above-mentioned rivals have posted stock performances that meet or exceed its annualized gain of 40 percent.
A Major Broadcast-TV Deal
Tribune Company's most recent bounce can be attributed to a decidedly non-technical development: the company's decision to purchase several major-market broadcast TV stations for nearly $3 billion. This all-cash deal will involve the transfer of 19 stations from Local TV Holdings to the Tribune Company and provide it with broadcast access to about 50 million U.S. households. After its official closing, Tribune will be one of the largest broadcasters in the United States.
This added market penetration will be important, but the deal's most attractive attribute may well be the rebroadcasting fees that Tribune stands to earn from these new properties. Since the country's cable stations must pay the owners of local TV stations for the rights to rebroadcast their networks, the Chicago-based firm stands to create several new streams of income in one fell swoop. Industry observers liken these fees to dividend income: They produce steady, predictable revenues without undue risk or other side effects.
Some observers also believe that Tribune Company is about to make a major push to revamp its existing cable property. Known as WGN America, the channel is one of the country's most widely carried cable stations. However, it generally serves up an odd mix of reruns, Chicago-based sporting events and classic films. With a sizable investment, Tribune could flesh out its lineup with original programming and compelling features. In turn, this could raise its rebroadcasting fees and provide Tribune with yet another source of predictable revenue.
Long-Term Outlook: Buy, Hold or Stay Away?
After a near-death experience, Tribune Company appears to be momentarily out of danger. At the same time, its old media businesses continue to drag on its bottom-line. Going forward, the success of the company's legacy divisions will hinge on its ability to create compelling content and leverage online revenue in innovative ways.
Fortunately, Tribune has taken a big step into the future with its broadcast TV acquisitions. Coupled with a revitalized WGN America, these properties could provide the firm with the revenue that it needs to shore up the more complex aspects of its business portfolio. Despite the company's rapid post-bankruptcy ascent, investors who have faith in Tribune's ability to complete its turnaround might find the company attractive at these levels.
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