Wall Street gives Granite a stone-faced look: the market's taking a 'show-me attitude' to the company latest acquisition.

Granite Broadcasting Corp.'s big graduation day got no more than a yawn on Wall Street. At the end of January, Granite (NASDAQ: GBTVK), a New York company that operates 11 television stations across the country, released news that it had entered its first top 10 market by buying WXON-TV, a Warner Brothers affiliate in Detroit. Despite all the hoopla, its shares slipped to a 52-week low of $8.25 by late April, a full 44% off its 52-week high of $15. Since then, the shares have rebounded to $8.38.

Of the nine analysts following Granite, seven rate the stock either as a "buy" or "attractive." according to Zacks Investment Research, even though Granite's earnings are negative. The reason for the optimism isn't Granite's profits, however. Broadcasting analysts judge their stocks by cash flow. On that count, Granite, which ranks well within the top 20 broadcasters based on households it beams programming to, has been reasonably successful.

In the first quarter of the year, however, television advertising was weak, according to analyst Rita Zanella at Gruntal & Co. in New York. And interest and debt service could cut into the cash flow the company brings in. While Chairman and CEO W. Don Cornwell reasons that the $175 million price tag Granite paid for its Detroit station was quite cheap, the company's debt-to-cash-flow ratio is 5.8. In all, broadcasting analyst Vinton Vickers at Furman Selz in New York, says the deal could cause dilution to cash flow in 1997. He expects Granite to report after-tax cash flow of 48 cents a share this year compared with 76 cents in 1996. A rosier 1998 should boost that figure to $1.35, Vickers says. That's because Granite should benefit from the improvements at WXON, as well as the Winter Olympics and general elections, which should increase advertising revenues.

The acquisition of WXON raises the percentage of U.S. households Granite's signals reach to about 8%. As a link in the WB Network, though, WXON receives evening programming only three times a week, and must buy programming to help sell ads the rest of the week. Also, prior to Granite's purchase, WXON also didn't report to the Nielsen rating agency, so advertisers didn't have a clear sense of who they were reaching. And to top things off, the station's sales force was less than aggressive, analysts say, which helped keep commercial rates low.

Cornwell's been there before and by now, has earned a reputation as a turnaround artist. "In about six to nine months when the market has the first positive indications of what Granite can do with WXON, the stock will probably start to pop," says Mark McFadden, an analyst at BT Securities Corp. in New York, who rates the shares a buy and holds a 12-month price target of $15. Already, the shares have bounced back a little over a dollar since setting a low in early April. Still, in this market, it's hard to tell what will happen to stocks like Granite. For his part, Cornwell agrees: "I think people are waiting to see how we do with Detroit, and as a result, the market's undervaluing us a bit."

B.E. BLACK STOCK INDEX
                                                    52-Week
Company                       Symbol   Exchange    High     Low
American Shared Hospital
Services                       AMS      AMEX       $ 2.19   $ 0.75

Ault Inc.                      AULT     NASDAQ     $16.50   $ 6.38
BET Holdings                   BTV      NYSE       $31.38   $23.50
Broadway Financial Corp.       BYFC     NASDAQ     $11.25   $ 9.00
Caraco Pharmaceutical Labs     CARA     OTC BB       N/A      N/A
Carson Inc.                    CIC      NYSE       $17.00   $ 7.25
Carver Bancorp inc.            CARV     NASDAQ     $10.63   $ 7.38
Envirotest Systems             ENVI     NASDAQ     $ 3.38   $ 1.63
Granite Broadcasting           GBTVK    NASDAQ     $15.00   $ 8.25
United American Healthcare     UAH      NYSE       $15.13   $ 4.25

                               Current
Company                        Price(*)   P/E      EPS
American Shared Hospital
  Services                      $ 0.88    0        $-0.08
Auil Inc.                       $ 7.13    13.44    $ 0.53
BET Holdings                    $28.75    21.62    $ 1.33
Broadway Financial Corp.        $10.75    0        $ 0.00
Caraco Pharmaceutical Labs        N/A     0        $-0.65
Carson Inc.                     $ 7.50    0        $-0.25
Carver Bancorp inc.             $10.00    0        $-0.05
Envirotest Systems              $ 1.63    0        $-2.21
Granite Broadcasting            $ 8.38    0        $-1.65
United American Healthcare      $ 4.50    0        $-0.27

(*) As of 4/29/97; EPS = earnings per share

Source: DBC Financial