ITV (LSE: ITV) has struggled due to challenging market conditions in recent years, as demonstrated by its demotion from the FTSE 100 in 2022. But things are looking up for the FTSE 250 share, and I think now could be a great time to consider investing.
Here’s why I think the company’s one of the London stock market’s best ‘all-rounders’.
Growth
ITV’s earnings record’s been less than impressive since the end of the 2010s. Indeed, the broadcaster’s bottom line’s dropped during four of the past five years. It’s suffered primarily as higher interest rates and an economic slowdown have struck advertising revenues.
But signs of improvement in the ad market mean City analysts think earnings are poised for a strong and sustained turnaround:
| Year | Earnings per share | Earnings growth |
|---|---|---|
| 2024 | 9.14p | 17% |
| 2025 | 9.72p | 6% |
| 2026 | 10.69p | 10% |
Brokers are also confident in the profits potential of other parts of ITV. Strong momentum at its ITVX streaming platform (where streaming hours grew 15% in the first half) should give the bottom line a lift.
Further progress is also anticipated at the company’s ITV Studios production arm where record profits are anticipated this year. The broadcaster’s targeted average organic revenue growth here of 5% between 2021 and 2026.
Dividends
Like earnings, dividends at ITV have been extremely volatile in recent years. They were axed entirely during the pandemic before returning and rising. Payouts were then frozen in 2023.
However, with profits expected to rise again, dividends are predicted to also ascend from last year’s 5p reward:
| Year | Dividend per share | Dividend growth |
|---|---|---|
| 2024 | 5.03p | 1% |
| 2025 | 5.14p | 2% |
| 2026 | 5.29p | 3% |
Dividends are never guaranteed. But ITV’s robust balance sheet means it looks in good shape to meet current projections. Its net debt to EBITDA ratio fell to 0.9 as of June.
Predicted payouts are also well covered by anticipated earnings. Dividend cover ranges 1.8 times to 2 times between 2024 and 2026.
Value
Current earnings forecasts mean ITV shares offer excellent value across a variety of metrics. The price-to-earnings (P/E) ratio is 8.8 times for 2024, and 7.8 times and 7.1 times for 2025 and 2026 respectively. These ratios are way below the FTSE 250 average of 14.5 times.
The price-to-earnings growth (PEG) ratio meanwhile, is 0.5 for this year. Any reading below 1 indicates that a share is undervalued.
Finally, the dividend yield for this year is 6.6% and rises to 6.8% and 7% for 2025 and 2026 respectively. The average FTSE 250 yield sits way back at 3.2%.
A top stock
Like any share investment, buyers today take on a degree of risk by acquiring ITV shares. Another downturn in the ad market, for instance, could weigh on earnings and dividends. The business also faces huge competition from other broadcasters and from streaming giants like Netflix and Amazon.
However, these risks seem to me to be outweighed by the potential benefits of owning the broadcaster’s shares. I think ongoing expansion at ITV Studios and investment in streaming in particular could deliver exceptional long-term returns to investors.
This post was originally published on Motley Fool
