Sinclair Broadcast Group Inc. turned in weaker-than-expected fourth-quarter results despite doubling profit, but the company said Wednesday it expects a boost this year from potential deregulation and the early phase of a new broadcast transmission system.
"With … the potential for deregulation on the horizon, we expect 2017 to be a pivotal year for Sinclair and the broadcast industry," said David Smith, Sinclair's executive chairman, in a company announcement.
Another benefit, he said, will come from the Federal Communications Commission's expected approval of "Next Generation" broadcasting, which would provide over-the-air, high definition broadcasts to mobile devices and open up new business opportunities for the Hunt Valley-based company.
Sinclair reported income of $120.9 million on sales of $797.7 million for the three months ended Dec. 31, buoyed by a mix of political ads during an election cycle, digital ad sales and growth in retransmission revenue, the fees that cable and satellite TV providers pay Sinclair to include their signals and content in channel lineups. While that was up from income of $58.2 million on sales of $611.8 million in 2015's fourth quarter, analysts had expected even stronger sales growth.
Sinclair earnings per share of $1.32, while up from 61 cents a year earlier, missed Wall Street's target of $1.36 per share, one analyst said.
Sales in the current quarter are on track to beat forecasts, the company said. Sinclair's shares rose nearly 4.5 percent to close Wednesday at $38.55 each.
"The rally may be an expectation that the FCC is going to be a little bit more friendly to broadcast deregulation," said Tuna Amobi, an equity analyst at CRFA Research, who reaffirmed a buy rating on Sinclair's stock and raised his 12-month price target by $14 to $33 per share.
Amobi noted that Sinclair sees potential for deregulation, which is expected to relax broadcast ownership rules and open the door for additional TV station acquisitions. Under current FCC rules, media companies are barred from owning both a TV station and a newspaper in a local market and face limits on TV station ownership within local markets.
During a conference call Wednesday, Sinclair CEO Christopher Ripley said the company is "optimistic" about the leadership of FCC Chairman Ajit Pai, who was appointed by President Donald J. Trump and confirmed last month.
"We expect good things to come from that," Ripley said. Deregulation should usher in a wave of consolidation, he said, "which I predict will allow broadcasters to compete more effectively with the big diversified media companies."
Sinclair is seeing strong growth in advertising on its digital platforms and through increased distribution of its Tennis Channel, Ripley said. The Tennis Channel reaches 30 million homes and is on track to reach more than 50 million homes by the end of the year.
Sinclair also has been active in launching new networks and programs, including TBD, a multi-screen TV network offering content from the Internet such as web series, short films and lifestyle, sports and music content, and Charge!, an adventure and action network offering TV series and movies through a partnership with Metro-Goldwyn-Mayer.
"My sense is Sinclair doesn't want to get caught in this traditional media label," Amobi said. "They understand that the industry is shifting."