This 6.3%-yielding FTSE 250 media giant looks 64% undervalued to me, with forecast earnings growth of 9.3% a year!

Shares in the FTSE 250’s ITV (LSE: ITV) are down 9% from their 24 July one-year traded high of 88p. This looks more dramatic than an 8p fall might otherwise appear, given the sub-£1 share price.

I think the decline resulted from a little profit-taking after a run-up following better-than-expected H1 results.

After this has washed through the market, I believe the share price could rise again – significantly.

A positive core business outlook?

The H1 2025 figures released on 24 July saw total advertising revenue slip 7% year on year. This beat analysts’ forecasts for an 8% fall. The overall drop was unsurprising, as H1 2024 included the Men’s UEFA Euro 2024 championship.

However, the consensus-beating revenue number was boosted by a 3% rise in revenue at ITV Studios. The company expects this division’s profits to rise in H2 due to the addition of some high-margin sales.

ITV Studios remains on track to deliver total organic revenue growth of 5% on average per annum to 2026. And it is forecast to do so at a profit margin of 13%-15%.

The company’s ITVX digital streaming service also performed well. Advertising revenue was up 12% over the period and total viewer streaming hours rising 15%.

A risk to these numbers is the high degree of domestic and international competition in the sector.

That said, consensus analysts’ forecasts are that ITV’s profits will grow by 9.3% a year to end-2027.

A major share price undervaluation?

ITV’s 0.8 price-to-sales ratio is joint bottom of its peer group, which averages 1.1. These firms consist of MFE-Mediaforeurope at 0.8, RTL Group at 0.9, Métropole Télévision at 1.3, and Atresmedia Corporación de Medios de Comunicación at 1.4.

So, it looks undervalued on this key measure.

A discounted cash analysis (DCF) shows where any firm’s share price should trade, based on cash flow forecasts for the underlying business.

In ITV’s case, the DCF shows its shares are 64% undervalued at their current 80p price. Therefore, their fair value is £2.22.

In my experience as a former senior investment bank trader, assets tend to converge to their fair value over time.

Strong dividend income flows?

ITV paid a 5p dividend in 2024, which gives a current yield of 6.3%. By comparison, the present average FTSE 250 yield is just 3.4%. Analysts project the firm’s yield will remain the same until end-2027.

So, investors considering a £10,000 holding in ITV would make £8,745 in dividends over 10 years. This would rise to £55,867after 30 years.

Including the initial £10,000 stake, the ITV holding would be worth £65,867 by that time. And this would pay £4,150 in annual dividend income by then!

These figures reflect the dividends being reinvested back into the stock – known as ‘dividend compounding’. Of course, there is no guarantee that the company will maintain its dividend. And whoever planted

Will I buy the shares?

Aged over 50 now, I rarely buy a stock priced at under £1. This is because the later one is in the investment cycle, the less time there is for stocks to recover from any price shocks.

However, I do think ITV’s strong earnings potential will drive its share price and dividends higher in the coming years.

So, I think it well worth the consideration of investors at an earlier stage of their investment cycles.

The post This 6.3%-yielding FTSE 250 media giant looks 64% undervalued to me, with forecast earnings growth of 9.3% a year! appeared first on The Motley Fool UK.

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Simon Watkins has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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