Nexstar Media Group (NXST) is the second largest owner of local TV stations in the U.S. It owns, operates, programs, or provides services to 170 TV stations covering nearly 39% of households, including within 20 of the top 50 markets in the country, explains Doug Gerlach, editor of Investor Advisory Service.
Over 80% of its station portfolio is network affiliates of the big four: ABC, CBS, Fox, and NBC. Historically, its primary source of revenue had been the sale of commercial air time to local and national advertisers. A decade ago, approximately 90% of the company’s revenue came from the sale of local and national advertisements.
Since then, retransmission revenues, collected from cable and satellite companies in return for the consent to retransmit the signals from Nexstar’s TV stations, have grown significantly and will account for more than 40% of 2017 revenue; continued growth in retransmission revenue should serve as a tailwind in coming years.
In January 2017, the company completed the $4.6 billion acquisition of Media General. This deal was significant and increased its local broadcast television portfolio by two-thirds and more than doubled the company’s audience reach.
Integration has gone well and expected synergies have been achieved more quickly than anticipated. The transaction required Nexstar to take on significant debt, but strong cash generation has allowed it to pay down debt, and the company plans to return to more normalized debt levels in 2018.
Management, which guides in two-year cycles due to the impact of political spending, indicated its expectation the company will generate average annual free cash flow of slightly over $600 million per year for the 2018/2019 cycle.
Nexstar expects a strong FY18 on the back of core advertising sales that are tracking improvements in the economy, midterm election spending, continued growth in retransmission and digital revenue, and the impact of tax reform.
On the back of growth in retransmission revenue, the integration of Media General, continued tuck-in acquisitions, and tax reform, we anticipate Nexstar Media Group will be able to grow earnings 20% annually over the next five years.
