Why this broadcast TV stock is a buy
People say linear TV is dead, but don’t say that. Nexstar Media Group (NASDAQ:NXST). The TV network reported record profits for its first fiscal quarter and easily beat revenue estimates.
Nexstar is the largest TV station owner in the country and also owns various networks, including The CW and Food Network. The stock had its best gain on Thursday, rising 6% to $178 per share. The stock has returned 11% year to date.
First quarter sales record
Nexstar owns more than 200 TV stations in 117 U.S. markets, reaching 220 million people, or about 68% of the population. It also owns a variety of networks, including The CW, Food Network, NewsNation, Antenna TV, and Rewind TV. Nexstar also owns Chicago political publications The Hill and WGN Radio.
In the first quarter, the company generated revenue of $1.28 billion, roughly in line with expectations and up 2% year-over-year. Nexstar’s revenue grew due to distribution revenue that TV stations generate from cable operators and other retransmission platforms through carrying fees, affiliate fees and spectrum. In fact, the company’s distribution revenue rose 4.5% in the first quarter to a record high of $761 million.
Nexstar’s revenue was also boosted by a number of other factors, including a new multi-year deal with KAZT-TV in Phoenix, the country’s 11th largest TV market, which also added a CW network partnership. The company also transitioned all 117 markets from third-party representation to its own national sales organization. Nexstar also recorded an increase in primetime viewership on The CW last quarter.
All of this revenue growth led Nexstar to dramatically increase its profits, posting net income of $167 million, a 90% increase over the previous year. Earnings soared to $5.16 per share, beating market expectations of $3.97 per share.
The profit surge was due not only to higher revenues, but also to a 4% decrease in operating expenses due to lower amortization of CW’s broadcasting rights and a $40 million gain from the sale of its ownership stake in Broadcast Music Inc.
Nexstar was also able to cut losses at The CW, the fifth-largest broadcast network in the U.S., by $50 million and reduce debt by nearly $30 million. Additionally, the company’s net profit margin increased to 13% from 7% in the same quarter a year ago.
Political season is coming
Nexstar has a lot of momentum ahead of this fall’s presidential election, when there is typically a big surge in political advertising. Advertising revenue fell 1% last quarter to $512 million, but management expects a windfall in advertising revenue for the remainder of the year.
“Looking forward, we are confident that Nexstar will deliver another strong financial result and build momentum through 2024, given the largest-ever political spending expected during this presidential election cycle,” Chairman and CEO Perry Sook said in the earnings report. “I expect to do it,” he said. .
In the last presidential election, Nexstar saw its core advertising revenue increase by $247 million, and political advertising revenue surged from $52 million in 2019 to $508 million in 2020. Therefore, Nexstar may see a similar surge this year.
The CW also signed a seven-year deal with NASCAR to broadcast the Xfinity Series starting this fall, which will add more fuel to Nexstar’s bottom line.
Nexstar is rated a Buy among analysts, with a median price target of $200 per share. It’s also relatively cheap, with a P/E ratio of 17 and a forward P/E of 6. Currently it is a buy.
