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On Sept. 11, investors weren’t so sure about the growth trajectory of Nexstar Media Group. It was nine months since the company closed on its $4.6 billion acquisition of Media General, a deal struck in September 2015.
It was also a period where scrutiny over Sinclair Broadcast Group‘s planned merger with Tribune Media increased in volume — and five weeks before Tribune stockholders overwhelmingly approved the merger.
Nexstar shares sat at $57.80. Today, they are at a record high.
It’s been a stellar three months for Nexstar on Wall Street. At the Closing Bell on Friday, the broadcast TV company’s stock was at $75.30, up 75 cents.
Nexstar went Ex-Dividend on Nov. 16, and a regular dividend was paid Dec. 1. It’s one-year Target Estimate is $85.89.
Now, with word that the U.S. Department of Justice is ready to OK Sinclair’s merger with Tribune — so long as some 12 stations are divested, The Wall Street Journal reports — Nexstar appears to be in the driver’s seat as another strong leader in broadcast television, an industry that could be entering a renaissance despite negative reports on prime-time Nielsen ratings.
Sinclair owns 173 broadcast stations, primarily in mid-size and smaller markets. Tribune’s stations, 42 in total, include stations in the top 3 DMAs. Nexstar’s portfolio includes 170 broadcast stations — reaching just under the FCC’s current 39% national ownership cap.
While Nexstar is still integrating the former Media General stations into its operation, the possibility of further growth exists. As RBR+TVBR reported Thursday (12/14), the GOP-led FCC has given the green light to a Notice of Proposed Rulemaking (NPRM) that seeks input on whether the Commission should modify, retain or eliminate the 39% national audience reach cap and/or its reinstated “UHF Discount” used by broadcast TV to calculate compliance with the cap will now be put to the public.
If the “UHF Discount” restoration leads the Commission to increase the 39% national audience reach cap, Nexstar could stand to benefit. Some of Sinclair’s biggest DMAs, minus Tribune, are its home market of Baltimore; Las Vegas; Milwaukee; Minneapolis; Pittsburgh; Portland, Ore.; Oklahoma City; Seattle; St. Louis; and Washington, D.C.
Nexstar’s biggest markets include San Francisco, where it owns MyNetwork TV affiliate KRON-4; Phoenix, where it owns KASW-61, an affiliate of The CW; and NBC-affiliated WFLA-8 and MyNetwork TV WTTA-38 in Tampa-St. Petersburg.
Nexstar also has a presence in Portland, Ore.; Raleigh; Indianapolis; and Connecticut, where WTNH-8 in New Haven is a major ABC affiliate in Southern New England.
Perhaps more importantly, Nexstar and Sinclair compete against each other in such markets as Nashville and Buffalo-Niagara Falls — each growth markets where, should Sinclair benefit, Nexstar could be poised to do so, too.
Even with Nexstar’s strong performance on Wall Street, not all market analysts and observers are hot on the Irving, Tex.-based company founded by Perry Sook in June 1996.
The IHS Markit Score on Friday (12/15) downgraded NXST shares from “Neutral” to “Negative.” Why?
Short interest is moderately high for Nexstar, it says, with between 10% and 15% of shares outstanding currently on loan. “This represents an increase in short interest as investors who seek to profit from falling equity prices added to their short positions on Dec. 13,” IHS notes.
But, there are some key positives IHS notes that are worth noting. First, Exchange Traded Fund (ETF) activity is positive, and over the last month the growth of ETFs holding Nexstar shares has been favorable, with net inflows of $6.77 billion.
As reported Dec. 6, the ETF with the greatest exposure to Nexstar, according to Capital Cube, is the Goldman Sachs Hedge Industry VIP ETF.
“This is among the highest net inflows seen over the last year and the rate of additional inflows appears to be increasing,” IHS says, adding that “economic output in this company’s sector is expanding.”
If that’s the most negative report for Nexstar, it looks to be a very Merry Christmas for Sook and his team — including Nexstar Digital, which in the last six weeks has launched a new technology that leverages proprietary audience and inventory data from all 171 Nexstar broadcast TV stations and 2,000 direct publisher integrations; and acquired LKQD Technologies, an independent video advertising infrastructure company founded in 2014, in an all-cash deal valued at approximately $90 million.
Then, there’s the straight-up revenue that Nexstar has recorded. In Q3, Nexstar enjoyed a net revenue jump to $611.87 million, from $275.66 million. Excluding political dollars, the revenue jumped to $645.53 million, from $271.36 million. Net income attributable to Nexstar jumped to $46.48 million (98 cents per diluted share) from $24.8 million (78 cents).
Of course, that includes the Media General stations, which weren’t in the Nexstar family a year earlier. Even so, the results beat Wall Street analysts’ forecasts. Digital had much to do with it.
Between 8 and 9 analysts are currently covering Nexstar. The earnings per share (EPS) estimates of these analysts for Q4 2017 are all over the map—the low estimate is $0.96, while the high estimate is $1.57.
Even the most conservative estimates are ahead of Q3, and with the Olympics on NBC affiliates owned by Nexstar in such big DMAs as Tampa — along with mid-term dollars that could be boffo, given the election of Democrat Doug Jones to the U.S. Senate in Alabama — Nexstar’s 2018 could be record-shattering.
This could explain why NXST shares are rated between “Buy” and “Strong Buy” by the analysts, with none suggesting a “Hold” or inferior rating.
While anything can happen, it’s likely a safe bet that short-term investors in Nexstar who rode the waves of 2017 will celebrate New Year’s with champagne and a few extra dollars in the bank. For stockholders who got in at $14.38 on New Year’s Day 2013, the cheers will be louder.
Still, “relative strength” is growing — but still not at a point Wall Street most prefers.
Investor’s Business Daily‘s Relative Strength (RS) rating on Dec. 7 was upgraded to 74 from 70. But, the publication notes, “it is a welcome improvement but still below the 80 or better score you look for.”
That, like the IHS sentiments, will likely be brushed off as a blip of negativity in a sea of positives: IBD adds that Nexstar earns the No. 1 rank among its peers in the Media-Radio/TV industry group, with Beasley Broadcast Group and Gray Television close behind.
Neither Sinclair nor Tribune Media were mentioned, potentially putting Nexstar in the driver’s seat as the company to look at when gauging how broadcast TV will perform in 2018 and in the year’s ahead.
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