Unlocking Value in Undervalued Broadcasters: Gray Media and Scripps' Strategic Play for Sustainable Growth

The consolidation wave sweeping local media is not just about merging balance sheets—it's a high-stakes game of regulatory arbitrage and operational efficiency, where undervalued broadcasters like Gray Media (NYSE: GREY) and E.W. Scripps (NYSE: SSP) are rewriting the playbook for survival. Their 2023 station swap, part of a broader industry shift, highlights how strategic asset swaps and regulatory tailwinds are enabling duopolies, cutting costs, and fortifying local news dominance—a bulwark against digital disruption. For investors, this move signals asymmetric return potential in an undervalued sector.

Regulatory Deregulation: The Catalyst for Consolidation
The Federal Communications Commission's (FCC) relaxed ownership rules under a Republican-majority regime have been the linchpin. By easing cross-ownership restrictions and granting waivers for “failing stations” like Gray's acquisition of Rochester's KXLT-TV, the FCC has greenlit consolidation. This has allowed Gray and Scripps to execute a landmark asset swap: Gray acquired 17 Scripps stations (including CBS affiliates) in exchange for nine stations and $200 million cash, while Scripps offloaded underperforming markets. The result? A strategic realignment that maximizes geographic reach while complying with revised ownership caps.

Duopolies: The Secret to Operational Efficiency
The swap's genius lies in its creation of duopolies—markets where Gray or Scripps now own multiple stations. These duopolies slash costs by consolidating newsrooms, sales teams, and infrastructure. For example, Gray's 61 duopolies (second only to Nexstar) enable cost-sharing on content production and advertising sales. The company's Q1 2025 results underscore this: broadcasting operating expenses fell year-over-year for the first time since 2020, as cost containment measures exceeded a $60 million annualized savings target.

Local News Dominance: A Shield Against Digital Decline
While digital giants siphon ad dollars, local news remains a cash cow—especially political ads. Gray's focus on hyper-local content, including its InvestigateTV+ investigative series and sports partnerships (e.g., Arena Football League, Cleveland Cavaliers), ensures relevance. These efforts align with FCC goals of preserving local journalism, even as streaming platforms rise. Gray's digital ad revenue grew at double-digit rates in 2025, compensating for declines in traditional retransmission fees.

Financial Flexibility: Debt Reduction as a Strategic Lever
Gray's leverage ratio improved to 6.5x by late 2024—down from 7.0x—thanks to $519 million in debt reductions since early 2024. This financial prudence is critical for executing future swaps. Compare this to Nexstar (NXST) at 3.7x or Tegna (TEGA) at 2.9x; while still elevated, Gray's progress suggests it can weather macroeconomic headwinds.

Why This Matters for Investors
Gray's stock trades at 8.5x 2025E EBITDA—a discount to peers and its own historical multiples. This undervaluation ignores its duopoly-driven cost synergies and the $300 million+ political ad upside in the 2026 midterms (Q1 2025 political revenue already exceeded guidance by 225% in Wisconsin). Meanwhile, Scripps, though smaller, retains a leaner balance sheet and radio assets that complement Gray's TV dominance.

Risks and Rewards
Risks include regulatory reversals under a future FCC or political ad volatility. However, the FCC's 2023–2025 reforms are baked into the industry's playbook, and Gray's Q2 2025 guidance for “mid-single-digit declines” in core ad revenue assumes a cautious macro backdrop.

Investment Thesis
Gray and Scripps are undervalued consolidators poised to benefit from three tailwinds:
1. Regulatory Tailwind: FCC reforms will continue enabling swaps, as seen in the KXLT waiver.
2. Cost Synergies: Duopolies and digital growth (now 20%+ of revenue) will lift margins.
3. Political Upside: 2026 midterms could mirror 2024's $300M+ political boom.

Action Items for Investors
- Buy Gray Media (GREY): Target entry below $10/share, with a 12–18-month price target of $14–$16, assuming EBITDA multiples expand to 10x.
- Monitor Scripps (SSP): Its radio portfolio and smaller scale make it a speculative play on further deals.
- Avoid Overpaying: Wait for dips in Q3, when political ad uncertainty peaks.

In conclusion, Gray and Scripps are not relics of the analog age—they're pioneers in a new era of regulatory-driven consolidation. Their station swap isn't just a deal; it's a blueprint for turning undervaluation into asymmetric returns. For investors willing to look past short-term ad headwinds, this is a bet on the enduring power of local news in a fractured media landscape.