Nexstar Media Group (NXST) has been of the best stocks in Northlake’s portfolio, up over 3 times from initial purchases in 2017.  The company’s latest earnings report for 4Q21 showed exactly why.  The company exceeded consensus earnings estimates for revenue, EBITDA, and free cash flow.  Management also rolled forward free cash flow guidance to a 2022/2023 average from the prior 2021/2022 figures.  The new guidance also exceeded consensus, a welcome sign for a management team known for providing positive but conservative outlooks that are almost always exceeded.

Stock Reaction:  On another tough day for the market, NXST shares are trading up almost 1% (S&P 500, -1.3%).  Nexstar shares are down only 3% from their all-time high that was set just one week ago even as the S&P 500 is -10% and the NASDAQ is -15% so far in 2022.

Earnings Analysis:  We have always been impressed by NXST’s management team, which we often have held out as one of the best of any company in any industry that we closely follow.  Management excellence extends to strategy, operations, and finances.  On the 4Q21 call, CEO Perry Sook said something we don’t remember hearing before when he noted, “Nexstar is managed from the bottom up.”  He was specifically referring to the focus on free cash flow above all else, but this quote also applies to careful and effective management of each individual TV station the company owns.  Our prior favorite comment about Mr. Sook was that he could probably answer a question in detail about sales trends at any of the company’s 199 TV stations.

Beyond the better-than-expected results and good guidance, the highlight of NXST’s results was core advertising revenue.  Despite auto ads still being down significantly, core advertising was up 4% vs last year and up vs pre-pandemic 2019.  8 of the top 10 categories were up and several were up well above 10%.  Sports betting has become a top 3 category and continues to grow as more states legalize.  Given the secular concern that local TV is dying and the cyclical worries about slowing economic growth and consumers cutting back as stimulus fades, these revenue results are unequivocally good news.  Management spoke confidently about the advertising outlook and noted so far trends in 2022 are as strong or stronger than the end of 2021.

Target Price:  Based on management’s new guidance, we see the shares with upside to $195, up from our prior $180.  We continue to use a conservative multiple of just 7X EBITDA despite NXST’s improved balance sheet, shareholder-friendly capital allocation including buybacks, January’s 29% dividend increase, and strong and highly visible multiyear outlook (ad recovery and mid-term political this year, renegotiation of affiliate fees and more ad recovery in 2023, and the Presidential election in 2024).  In other words, we see our target as potentially conservative.

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.