The title of this blog post is similar to when we last discussed Nexstar Media Group (NXST).  This is no coincidence as the company’s 3Q21 earnings report was more of the same good news.  NXST has built nationwide scale of local TV stations, a business than has always generated large free cash flow (TV stations require very little capital spending and operate at high margins).  The company’s scale is currently allowing it to fully participate in above average economic growth and use its free cash flow in multiple ways to support shareholder value.  NXST, like other local media stocks, has always been volatile, but we expect the slow grind higher that has the stock up from $58 in 2017 when we first purchased it to $160 (up 175%) to continue.

Stock Reaction:  NXST shares initially traded down 1-2% following the company’s conference call to discuss the 3Q21 results but as the day wore on the tide turned leaving the stocks up 3-4% and close to its all-time high set earlier this year.  The shares have moved sideways since July even after the company raised guidance for its 2021/2022 cycle after the 2Q21 report.  Whether or not another solid quarter is enough to allow a breakout from the trading range in either direction, we still see the next big move higher barring a macroeconomic setback.

Earnings Analysis:  3Q21 earnings were good, led by a rebound in core advertising excluding the auto category.  Auto remains a top 5 category and it has not rebounded yet from pandemic lows due to supply constraints.  Dealers do not have enough cars to sell, so they limit their advertising spending.  All other top 10 ad categories are growing, with sports betting continuing to develop into a new top 3 vertical.  Excluding auto, core advertising was up double digits vs. 2019, a result that will likely surprise many investors who ignore local TV and believe it is a dying category.  NXST’s other big revenue stream is retransmission fees that it receives from cable, satellite, and streaming services that offer its TV station feeds to subscribers.  Visibility here remains good with most contracts locked in through 2022.  The next cycle will begin in 2023 where we still expect moderate growth despite lower sub counts due to the continued importance of local TV news and smaller but still leading TV ratings for broadcast entertainment programming.  NXST has been bulking ups its digital revenue through acquisitions of content that is complimentary to its news operations.

Target Price:  NXST is valued on two-year average earnings due to the massive swings in political spending between even and odd years.  The latest report suggests that the company could exceed its current guidance for free cash flow.  Management was confident in near-term trends and another political cycle kicks in next year.  There was even a mention of further growth in 2023, an unusual utterance for a management team that very carefully and effectively manages street expectations. 

NXST is a relative thinly traded stock in an industry that investors view skeptically on a secular basis.  This leads to volatility in the shares as today’s post earnings trading indicates.  NXST has one of the best management teams among all stocks we follow, and we remain highly confident that operational, financial, and strategic success will continue, so we are comfortable riding out volatility in the share price.

We are sticking with our $180 target price built on what we believe to conservative assumptions.  We continue to see an easy path to $200 or more if the company successfully answers investor concerns about advertising and retransmission growth as streaming continues to gain share of TV viewing.  Further clarity on the balance of capital allocation between acquisitions and share buybacks is also important.  Given the company’s history, we expect the answers to be satisfactory supporting our bullish outlook.

NXST is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.