Thursday, March 5, 2020

A Current AIM Small Cap Equity Holding: Nexstar Media Group (NXST, $114.98): “Post Acquisition Reality”

Nexstar Media Group (NXST, $114.98): “Post Acquisition Reality”
By: Kat Christian, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Nexstar Media Group Inc. (NASDAQ: NXST) provides broadcasting and digital media services across the United States.

• NXST has paid a dividend since 2013 and grown over 24% on a compound annual basis since. NXST increased their quarterly dividend by 24.4% to reach $0.56 in January 2020.

• NXSP engaged in retransmission consent agreements this quarter, representing 70% of subscribers and made long-term affiliation contracts with CBS, FOX, and NBC.

• Management has indicated that the acquisition of the Tribune Organization is expected to generate more pro forma free cash flows of more than expected, increasing expectations from $1.02 to $1.175 billion.

• The company experienced double digit growth in all non-political revenue streams, due to the biennial nature of their political revenues business.  

• The company repurchased $45.1 million of common shares throughout their fourth quarter.   

Key points:

Purchase & Sale. 
NXST announced in November 2019 that they would be purchasing and divesting a number of affiliate networks with FOX Corporation.  They are purchasing networks worth $45 million and divesting to FOX Corporation in the sum of $350 million. These purchases are expected to realize operating and financial synergies for NXST in their North Carolina, South Carolina, and Virginia Markets. The proceeds from the sale of networks is in the process of being used towards the reduction of borrowings under a credit facility.

Horizons Broadened. 
2019 was a year very busy for NXST, as they are almost fully finished integrating Tribune Media into their operations, expecting to realize over $185 million in synergies, $25 million more than previously expected. This acquisition landed NXST the largest U.S. television broadcast station group on the country, with both national coverage and reach.

Summer News Launch. 
Expected to reach 75 million US households, News Nation, NXSP’s latest announcement, is the WGN prime-time national newscast that comes along with a new, around-the-clock news app. This news platform is set to use the expertise of 5,400 journalists and 110 newsrooms in the country. The goal of the platform is to provide fact-based information to viewers without any semblance of bias or opinion while also generating advertising revenue.

What has the stock done lately?

Since the beginning of 2020, NXST’s stock has decreased .03%, reacting much better to current economic factors that the market in general. However, in more recent times, the company announced earnings on February 26th, missing expected EPS by $0.95, or -28.70%, but reaching record free cash flows, at $173.9 million. This is the second time in the last four quarters that NXST had missed earnings. This miss caused the stock to fall in conjunction with the effects of corona virus, approximately 10.43%.

Past Year Performance: 

NXST has increased 20.41% in value over the past year, but regardless, the stock is trading at a bargain due to current global economic factors.  With the progress of their acquisition, the synergies they have been realizing, and the progress they are expected to make, the company’s valuation is seen as low in comparison to its historical average and future potential.

Source: FactSet

My Takeaway

MXST missing earnings was as setback for the company and stock, but in general the company has just released new and improved expectations, higher expected synergies from their acquisition, and a new product that will reach 75 million U.S. households. The company is poised for more growth looking into 2020. Management is confident in the abilities of the pro forma operating company and the expertise it has, not only in select markets but across the country.

Source: FactSet