Nexstar Media Group: Not Your Typical Local Television Play

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Over nan past fewer years we person traded successful and retired of media names based connected wherever we saw charismatic valuations aliases typical situations. In astir cases we utilized companies that were mostly axenic plays successful what they did, nevertheless coming we want to item a sanction that we deliberation mightiness position investors to use from nan beardown rate flows of nan section broadcasting business while having vulnerability to plays that mightiness very good play a cardinal domiciled successful bridging nan spread to nan early of tv - connected some a section and nationalist level.

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Legacy Assets Paving The Way To The Future

Nexstar Media Group (NASDAQ:NXST) has been slow transitioning their business complete nan past fewer years by either picking up assets connected nan cheap, aliases processing caller concepts successful location on logical budgets, to portion together what mightiness beryllium nan early of nan company. Everyone knows astir Nexstar's awesome section broadcast assets, nevertheless Nexstar has made moves that could move retired to beryllium shrewd transactions down nan road. While immoderate semipermanent investors whitethorn beryllium acquainted pinch Antenna TV and Rewind TV, we deliberation that Nexstar's acquisition of The CW from Warner Bros. Discovery (WBD) and Paramount Global (PARA) mightiness yet beryllium to beryllium bully for some The CW (as it gets much attraction from an willing genitor organization) and Nexstar arsenic it gains an plus that tin thief it scope its nationalist aspirations. Note: Nexstar purchased 75% of nan web and Warner Bros. Discovery and Paramount Global each retained a 12.5% ownership stake.

The CW will beryllium an plus that takes clip to play out, arsenic we judge that guidance will person to do a rework of nan web to optimize revenues and profits moving forward. The bully news is that nan institution has assets that we judge to beryllium complimentary and should thief hasten nan overhaul. We deliberation that nan institution could utilize immoderate on-air talent from their OTT and cablegram properties, arsenic good arsenic studios and sets to thrust synergies and support costs low. We are not judge that The CW will beryllium profitable successful 2025 arsenic guidance states is nan goal, but we do for illustration that Nexstar sold immoderate existent property to screen nan expected losses moving guardant successful bid to not effect their plans to return superior to shareholders.

While The CW is an plus that we judge could make important returns for shareholders complete time, it is our sentiment that NewsNation is presently nan company's champion positioned plus to thief thrust shareholder returns successful nan near-term. It has been profitable since motorboat and Nexstar has a scheme to modulation to 24/5 news successful 2023 and 24/7 news by nan extremity of 2024; which is cardinal because of nan nationalist elections taking spot successful 2024. NewsNation is positioned arsenic a nonpartisan web and is focused connected delivering news to service those who place arsenic independents. A number of caller hires would look to skew left, nevertheless guidance is focused connected wanting to present existent news and differentiate themselves by not displaying a bias. Note: Many of these high-profile hires person besides helped boost assemblage and ratings growth.

NewsNation is still not successful each of Nexstar's media markets, nevertheless we judge that guidance will proceed to person occurrence successful getting MVPDs to prime up nan transmission arsenic they renegotiate their section broadcast contracts moving forward. The MVPDs decidedly request Nexstar's broadcast product, truthful a caller news transmission astatine nan correct value tin beryllium seen arsenic nan costs of doing business.

Further down nan road, Nexstar mightiness besides reap important rewards from ATSC 3.0 but astir of those returns would beryllium backmost loaded adjacent nan extremity of this decade.

Cash Flow And Balance Sheet

Unless Nexstar's adjusted FCF moves dramatically higher successful 2023, we fishy that management's allocation of FCF will stay comparatively unchanged from 2022 - speech from nan ample dividend summation announced successful January. With $140 million+ owed for required indebtedness repayment successful 2023, we deliberation guidance mightiness salary down a full of $300 cardinal truthful agelong arsenic nan business remains beardown and they are capable to support leverage ratios astir existent levels.

We fishy that indebtedness repayment, arsenic a percent of FCF, will dip successful 2023 arsenic location are minimal maturities and guidance wants to attraction connected driving shareholder returns. (Nexstar 2023 Investor Presentation)

So agelong arsenic liking rates do not proceed their march higher, we judge that Nexstar will person nan expertise to proceed to repurchase shares. In fact, successful past quarter's 10-Q Subsequent Events conception we noticed this:

Nexstar repurchased astatine slightest different $100 cardinal successful communal banal successful Q4 and it is important to statement that nan institution tin proceed to do this because nan acquisition of The CW and nan losses it will make will beryllium offset by nan $200 million+ successful gross rate proceeds from nan waste of existent estate. (Nexstar Q3 2022 10-Q)

We expect Nexstar to person repurchased much than $100 cardinal successful shares nether their stock repurchase scheme successful nan 4th quarter, and to instrumentality to a comparable magnitude (in $ terms) for FY 2023.

What To Watch With Quarterly Results Upcoming

The institution announced successful January that they would beryllium expanding their dividend by 50%, from $0.90/share to $1.35/share per quarter. The output is beneath 3%, but nan institution does person nan expertise to proceed raising it successful early years. While this was awesome news and made nan banal moreover much compelling erstwhile compared to peers connected nan nationalist and section side, we will beryllium paying attraction to what guidance has to opportunity astir their superior allocation priorities and really they are specifically allocating FCF moving forward. Dividends person made up a mini information of this allocation, but pinch nan summation we are willing to spot if guidance is going to slow stock repurchases aliases perchance indebtedness repayment. This could very good beryllium a shut up constituent if advertizing dollars proceed to rotation successful for 2023, successful which lawsuit guidance could complaint ahead.

We dream that guidance continues to salary down debt, not because nan leverage is troubling astatine 3.2x, but because Nexstar has conscionable complete 60% of its indebtedness arsenic floating complaint pinch nary hedges successful place. While location are nary awesome maturities (just required payments connected nan loans) complete nan adjacent fewer years, 2026 and 2027 will person to beryllium addressed arsenic location are ample maturities which besides hap to beryllium crossed different indebtedness types (loans and bonds).

With nan institution reporting their Q4 and FY 2022 results connected February 28th, we deliberation that guidance should beryllium capable to supply beautiful meticulous specifications connected nan company's modulation of NewsNation to 24/5 news programming successful Q2 of 2023 (with two-thirds of Q1 complete, 1 would presume that if location were immoderate problems pinch nan transition, past nan institution would beryllium alert of them by nan clip they big nan convention call).

Final Thoughts

Nexstar is an intriguing play among nan section tv broadcasters, and we deliberation that their banal value says it all. The marketplace likes nan communicative and believes that guidance will execute connected their plan. While nan bequest business will proceed to make beardown FCF for investors and work some nan indebtedness and stock buybacks (and dividends arsenic well!) we deliberation that guidance has been wise to target integrated maturation opportunities that not only fresh good wrong their halfway business (which enables accelerated deployment/ramp-up) but besides coming opportunities that person precocious margins and nan expertise to make beardown FCF.

As nan institution continues to salary down indebtedness complete nan years and their caller ventures, specified arsenic NewsNation, statesman to carnivore important rewards, we judge that Nexstar will beryllium successful a position to not only proceed to prosecute successful further M&A, but ramp up dividends and stock buybacks.

Even pinch nan banal trading adjacent highs, we are buyers of Nexstar for portfolios without existent vulnerability to nan sanction up to our desired portfolio weighting. We judge that existent positions should beryllium held arsenic location is much worth to beryllium realized complete nan adjacent 18-24 months arsenic governmental advertisement money reappears.

Follow america connected Twitter here: @theinvestar Previously a Trader/Portfolio Manager for a Treasury Office managing anyplace from $10-20 cardinal (treasury assets, status benefits, endowment related funds), presently portion of a squad that oversees an extracurricular finance head managing almost $30 billion. Previously nan laminitis of theinvestar.com, LLC. theinvestar.com, LLC was a starring news supplier connected nan potash and uranium mining industries supplying information services, commentary, interviews, finance news, newsletters and quarterly manufacture publications.