Sinclair Broadcast dips 4% as J.P. Morgan downgrades in front of tough 2023

Sinclair Broadcast Group (NASDAQ:SBGI) is 3.6% lower Thursday after a downgrade to Underweight at J.P. Morgan, which sees a tough year ahead for ads and distribution.

Analyst David Karnovsky cut from a previously Neutral view: “More broadly, we expect the off-political 2023 to be a difficult year for the group, with a potential recession impact to local ads and elevated cord cutting driving slower gross and net retrans growth versus recent trend.”

Multiples across the sector are “depressed” on a free cash flow basis, and Sinclair isn’t exempt, and there’s more room for valuation downside amid “heightened secular concerns over the linear ecosystem combined with high leverage.”

The company’s equity ownership in its Diamond Sports Group unit (home to the former Fox regional sports networks) still marks an overhang, he said, suggesting the potential need for support from Sinclair.

He’s cutting 2023 and 2024 estimates, saying “We expect negative revisions to consensus estimates, and see a challenged setup for the stock over the next 6-12 months, or at least until early 2024 when we’ll have some visibility into presidential cycle growth and the outcome of MVPD renewals.”

The firm cut its one-year price target to $16 from $25, vs, a current price of $16.50.

On Monday, Diamond Sports Group named David Preschlack as its next CEO. Seeking Alpha