On April 9 Well Fargo upgraded Gray Television (GTN) to “market perform,” sending shares of the small cap way up in early trading action. The upgrade caused Gray's shares to gap at open, and reversed a bad slide in 2014. Gray had been on a slide in 2014, a slide that was exacerbated by a poor earnings report on March 11. But the play is still up 106.27 percent from its share price a year ago, and our metrics indicate it might not be time to change the channel on this TV company quite yet.
Gray is included in the Equities.com Small Cap Stars Research project, and we’ve been tracking Gray since the beginning of 2013. We singled out Gray because it possessed strong attributes in areas we found especially important for the Services sector. Last year, Gray was actually the top-performing Services stock in our entire index.
While Gray indeed fell short of analysts’ estimations in their most recent earnings report, missing on revenue and earnings, both our analysts and Well Fargo’s find a lot to like in the stock. Wells Fargo’s Marci Ryvicker wrote in a note to clients that "we like the potential for M&A, net retrans growth, and political exposure and see potential upside to estimates" for Gray.
Equities.com has given Gray a rating of five stars, the highest possible mark for a Small-Cap possible. That means Gray met all five of our benchmarks for a small-cap service stock: no dividend, firm value, high pre-tax operating margin, healthy market debt/equity ratio, and a high of institutional ownership.
After operating with just one affiliate for 35 years, beginning in 1993 Gray began an aggressive series of acquisitions that has continued unabated since. The company now owns 41 TV stations throughout the American South and Midwest.
While Gray had become overbought in the early part of the year, and missed earnings, the Atlanta-based company erased a significant portion of 2014’s losses on the Wells Fargo upgrade. By midday Gray’s shares had risen 17.44 percent to hit $11.65 a share.
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