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Why Tegna Jumped Nearly 11% Today

By James Brumley – Sep 21, 2021 at 4:32PM

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The television station conglomerate has confirmed last week's rumors that would-be buyers are putting offers on the table.

What happened

Shares of television station conglomerate Tegna (TGNA 1.68%) ended Tuesday's trading session 10.7% higher than Monday's close, following the company's confirmation that it had received multiple official acquisition offers.

So what

If the reporting rings a bell, there's a reason. Tegna stock also soared last week on unconfirmed whispers that prospective suitors were interested. The rumors, as it turns out, were true.

Rising stock chart being plotted by a businessman.

Image source: Getty Images.

Tegna's press release didn't offer any details as to the number of bids in-hand or the highest bid. The company only said that its board of directors would review the received proposals.

Now what

Tegna, formerly known as the more familiar Gannett, owns 64 television stations in 51 different U.S. markets. Its network of stations serves nearly 40% of the country's television-viewing households. The company also owns cable channels True Crime Network, Twist, and Quest, although bidders are most likely to be compelled by the scope and size of its localized TV stations.

It's good at what it does, too. In a market environment that's seeing the steady evaporation of interest in cable TV, Tegna has found a way to continue growing its top and bottom lines. The $4.8 billion outfit has steadily improved annual revenue since 2018, and with the exception of 2019, the bottom line has seen similar progress. This year's top-line growth pace is expected to cool to around 2%, and profits are projected to drop just a bit. But the company is expected to accelerate its results again beginning next year, with top-line growth projected to reach 14%, in turn driving this year's expected per-share profits of $2.12 to $3.01 per share in 2022.

A buyer could certainly do worse than acquiring Tegna while its stock is priced just a little over seven times next year's earnings estimates. Indeed, shares are arguably worth considerably more than their current price near $21.60, even with the 32% rally from its low seen just two Fridays ago.

The challenge, however, is the sheer size of the gain itself. It's unlikely investors are willing to continue bidding the stock up, particularly without knowing any of the offers' specifics. In a similar vein, it's likely the company's current market cap has already reached the maximum amount any suitor was willing to (or planning on) paying.

Given this dynamic, there's not enough reason to jump in now. There's more prospective downside than upside from here.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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