PARAA - Nexstar Media: Earnings Poised To Inflect Potential $50 Of FCF/Share On The Horizon

2024-07-15 07:20:55 ET

Summary

• Nexstar’s true value is obscured by stalling carriage fee growth, CW Network losses, and de-bundling fears. All three headwinds will reverse over the next 12 months.
• NXST is poised to generate $40/share of FCF by year-end against a share price of $170.
• Management is committed to buybacks and is repurchasing 10% of the float per year, while also paying a 4 percent dividend.
• Below, I lay out how $50/share of average annual FCF is achievable in 2025/2026. At 8x earnings, this can be a $400 stock in 2.5 years, for a 30 percent IRR.

Investment Thesis

Nexstar Media Group (NXST) is experiencing the biggest delta between price and quality that I've ever witnessed in a publicly traded company.

It's run by an owner-operator CEO; half of its revenue is recurring with built-in price escalators; margins hover at 40%; and its assets are irreplicable. Yet, Nexstar trades at less than five times this year's free cash flow.

Why will the narrative on the stock change now? There are three thesis points to consider which are supportive of an inflection in sentiment and share price:

Retransmission fee growth will strengthen in H2 '24 after a year of elevated cord cutting. The CW Network's run-rate losses have plummeted from $250M to $100M, which will flow through the income statement this year. Charter's distribution deal with Disney is a positive for Nexstar....

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