E.W. Scripps (SSP) shares are down 71% in the last year. SSP stock has a market cap of just $204 million. Due to its big fall, it is in the 98th spot on Barchart’s Bottom 100 Stocks to Buy.
With a focus on local journalism and $1.4 billion in 2023 revenue, aggressive investors might want to consider a small wager. Here’s why.
E.W. Scripps’ Long and Winding Road
Founder E.W. Scripps launched the Penny Press in 1878 with $10,000 in borrowed funds. The paper gave a voice to the working class in Cleveland, Ohio. By 1890, Scripps had several papers in Ohio and Kentucky.
In 1907, he started the United Press, a newspaper wire service, to compete with the Associated Press. Scripps hung on to what became known as UPI until 1982. In 1935, it got into radio broadcasting with stations in Cincinnati and Knoxville, Tennessee. In 1947, it entered television broadcasting with WEWS in Cleveland. In 1980, it entered the cable business in Evansville, Indiana.
In 1988, it went public on the Nasdaq, switched to the NYSE in 1991, and switched back again in 2018.
It launched or acquired several cable networks, starting with HGTV in 1994, Food Network in 1997, and several others. In June 2008, it spun off the cable networks and online shopping services into a separately traded company, Scripps Networks Interactive, which was acquired for $14.6 billion by Discovery Communications, now Warner Bros. Discovery (WBD), in March 2018.
With the spinoff of its newspaper business into Journal Media Group in April 2015, it exited the newspaper business after 137 years. A few months later, Gannett (GCI) announced it would buy the newly public company.
In 2018, it exited the radio business, completing the sale of its last 19 stations to Summit Media in August 2018. Fast-forward to today, and it operates more than 60 TV stations in over 40 markets across the U.S.
This is to say that it has clearly seen better days. Its market cap says all you need to know.
Why Bother With E.W. Scripps Stock?
This year is expected to provide significant election-related revenue as the race for the White House culminates with election day on Nov. 5. In May, the company reported its Q1 2024 results, saying its 2024 election-year political advertising revenue should be $255 million at the midpoint of its guidance, $25 million higher than its previous guidance.
“In the first quarter, we were pleased to deliver strong operating results that exceeded our expectations due to our close expense management. Local political is coming on strong. We also are seeing green shoots in the national direct response advertising marketplace while scatter market pricing improved in Q1 2024 over Q1 2023,” CEO Adam Symson stated in its Q1 2024 press release.
The CEO said that the number one priority is to reduce its debt levels by the end of 2024 -- it finished the first quarter with $3.01 billion in total debt -- through a combination of tight expense management, increased revenues, and the sale of its Bounce TV network and other non-core real estate assets.
Acquired in 2017, the company has doubled Bounce’s revenue and continues to grow the network’s audience. It decided to sell because it was receiving numerous expressions of interest from strategic buyers. Estimates put the network’s annual revenue at $80 million. There are some who believe Scripps could generate as much from a sale as the current market cap.
The Local Media segment had a good first quarter, with revenues up 13% to $353 million and a segment profit of $65.6 million, 43% higher than a year ago.
However, between interest on its debt and preferred dividends (I’ll get to that), it lost $12.8 million in the quarter, down from $31.1 million in Q1 2023. If you exclude the two items, it earned $56.5 million, up 86% from $30.3 million a year earlier.
So, the business has a shot at surviving over the long haul.
Warren Buffett’s Misfire
Barron’s reported in early June about the Oracle of Omaha’s potential misfire with Scripps preferred shares. To be fair to Buffett, Ted Weschler, one of the company's other portfolio managers made the $600 million investment that Berkshire Hathaway (BRK.B) did in early 2021.
The $600 million in preferreds were used to finance the company’s $2.7 billion acquisition of Ion Media, which owned TV stations and a national TV network. While the preferreds came with an 8% interest rate, paying out $48 million in income to Berkshire in each of the last two years, the company has chosen to defer payments in 2024.
As a result, the Berkshire preferred increases to 9%, with Scripps unable to pay any common dividends or repurchase its shares until it redeems all $600 million plus deferrals. In the meantime, quarterly deferred preferred payments get added to the principal amount.
As Barron’s points out, $600 million is peanuts to Berkshire. It very well may have to eat the entire investment. However, given Berkshire's success over the years with preferred issues, it’s understandable why Buffett went along with Weschler's bet.
The funny thing is that people thought Buffett was crazy for buying $10 billion in Occidental (OXY) preferred shares in 2019. They, too, paid an 8% dividend. It’s now Berkshire’s sixth-largest holding, valued at nearly $15 billion, and the four-plus years of $800 million in preferred dividends.
With 23 million warrants on the preferreds and an exercise price of $13, Berkshire can do little but wait and hope for the best.
The Bottom Line
As I said in the intro, Scripps isn’t something for risk-averse investors.
However, if you’re patient, you might be able to pick up Dec. 20 $5 calls at or near $35 per 100 shares, a 7% down payment. With 195 days to expiration, it has traded above $5 multiple times in the past 52 weeks. The only downer: Scripps stock has a 30-day average options volume of 149. You might be waiting a long time.
If Berkshire wasn’t involved, I’d be far less open to recommending SSP stock. Good luck if you do take a flyer on it. You’ll definitely need it.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
