Noble cuts target price, maintains ‘outperform’ on Saga Coms. as shares slide

Noble Capital Markets thinks now may be the right time for investors to take a look at small-cap broadcast company Saga Communications, which operates more than a hundred radio stations globally. The stock has dropped nearly 50% over the last year, largely due to macroeconomic uncertainty weighing on ad revenues. However, Noble believes the company can now get back to focusing on strategy execution.

“Investors should have SGA shares on their radar screens,” Noble says. Shares have lost nearly 50% over the last 12 months, primarily due to macroeconomic uncertainty impacting ad revenue and the fact that Saga’s digital segment is still in the early stages of development, the note explains.

But the tide may be turning — broadcasting stocks tend to recover quickly, Noble points out.

One potential catalyst, Noble notes, is the resolution of tension with activist investor Gate City Capital Management. In January, Gate City expressed frustration with Saga’s financial performance and nominated four candidates to the board. At the time, Saga had just released its third-quarter results, which showed a 3.5% year-over-year drop in revenue to $28.1 million. The company later reported a 1.3% decline in fourth-quarter revenue to $28.8 million.

In March, Saga reached an agreement with the activist investor, and Gate City withdrew its board nominations.

With that issue behind, Saga is now fully focused on its growth strategy, Noble writes. The company aims to cut costs and expand its hybrid advertising model, which combines traditional radio with digital channels like podcasts to broaden audience reach.

Saga maintains one of the best balance sheets in the industry, Noble claims. As of March 10, the company held $27.3 million in cash and short-term investments. It also has “strong record of returning capital to shareholders,” Noble notes — since 2012, Saga has paid out more than $137 million in dividends.

Still, Noble cut its target price on the stock by 25% to $18 per share while reiterating its “outperform” rating. The new target price implies nearly 60% upside versus the last closing price.