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Why Sinclair Broadcast Group's (SBGI) Shares are Higher Today

NEW YORK (TheStreet) -- Shares of Sinclair Broadcast Group  (SBGI) are higher by 5.81% to 28.60 in early trade this morning following the company's announcement that it has submitted a letter to the Federal Communications Commission in order to meet certain objections the FCC has to shared services agreements in particular and to shared agreements generally which are coupled with a contingent financial interest, such as a guarantee or an option.

If the proposed restructuring is approved, Sinclair will sell certain stations it currently owns to parties other than the parties who were originally contemplated to buy these stations, and following the sale will not provide any services to such stations.

The stations to be sold are WHP, the CBS affiliate in Harrisburg, Pennsylvania, WMMP, the MyNetwork affiliate in Charleston, South Carolina and WABM, the MyNetwork affiliate in Birmingham, Alabama. Sinclair would also discontinue providing services to WTAT, the FOX affiliate in Charleston and would transfer to the buyer of WHP, the rights under an existing LMA to provide services to WLYH, the CW affiliate in Harrisburg.

In each of these three markets, Sinclair is buying the ABC affiliate from Allbritton. Sinclair would retain ownership of WTTO, the CW affiliate in Birmingham.

"The proposed changes to the transaction will have an immaterial impact on Sinclair as a whole and on the Allbritton transaction in particular," said David Smith, Sinclair's President and Chief Executive Officer.

Separately, Sinclair's board of directors approved another $150 million share repurchase program. The stock buyback of Class A common shares would begin after an existing $100 million repurchase program ends. There is $47 million remaining under the existing program.

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TheStreet Ratings team rates SINCLAIR BROADCAST GP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SINCLAIR BROADCAST GP (SBGI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.2%. Since the same quarter one year prior, revenues rose by 29.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, SBGI's share price has jumped by 45.84%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • SINCLAIR BROADCAST GP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, SINCLAIR BROADCAST GP reported lower earnings of $0.66 versus $1.77 in the prior year. This year, the market expects an improvement in earnings ($2.16 versus $0.66).
  • The gross profit margin for SINCLAIR BROADCAST GP is rather high; currently it is at 60.70%. Regardless of SBGI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SBGI's net profit margin of 0.53% is significantly lower than the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Media industry. The net income has significantly decreased by 96.1% when compared to the same quarter one year ago, falling from $59.00 million to $2.30 million.
  • You can view the full analysis from the report here: SBGI Ratings Report

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