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About Nexstar 

Ah, 13F season, one of the best times of the year.

I learn so much about myself.

Mainly, I am a huge, gigantic, unequivocal nerd, as during each recent filing date I feverishly refresh the pages of my phone of the top hedge funds that I am most interested in seeing their recent trades, positions and market moves so as to attempt to put the pieces of the puzzle together regarding why certain fund managers are staying invested or investing in certain companies through their publicly traded securities.

In saying all of this, one of my favorite hedge funds to check up on is headed by one of the few that predicted, bet on and profited handsomely from the housing crisis of 2008, Dr. Michael J. Burry’s Scion Asset Management.

Upon checking his updated portfolio, one of the things that caught my eye was his purchase of more than 30,000 shares of Nexstar Media Group (NASDAQ: NXST), raising his previous relative portfolio holding of this company’s stock from 0.14% to its most recently reported stake of a whopping 7.05%, substantially raising his stake in the company’s stock, directly indicating that he and his firmmates are net bullish on the company and its prospects.

But why?

Many would instantly argue that local broadcasting and news networks are a slowly dying and decaying industry and that companies such as Nexstar derive and rely on too much of their revenues to come from advertisers.

While this is a valid argument in itself, we see two primary reasons Burry and his firm have become heavily bullish on this company and its stock.

One, at first glance, the company’s stock (NASDAQ: NXST) seems to be trading at a relative discount with respect to its actual, intrinsic worth, as its price-to-earnings (P/E) ratio presently sits well below the commonly held, fair value benchmark (20) at an attractive 12.86.

Hey, if you can scoop up a more than established media company’s stock at a steep historical discount, why not?

However, we deem the second reason to be more pressing, as we think Dr. Burry and his firm have become increasingly bullish on political advertising spend, and given the networks and affiliates Nexstar operates and owns, many (if not all) are prime targets for political candidates and groups to target the small-town, local audiences and what better way to do that than to spend a considerable amount of marketing dollars with Nexstar Media Group?

Especially as we are just about one year out from the coming presidential election cycle here in the United States, Nexstar more than likely already has a fairly extensive backlog of politicians and interest groups ready to advertise through the media company’s channels, literally.

Interesting, right?

With headquarters spread all across the country, Nexstar is home to a substantial portfolio of television (TV) stations across the United States, along with a few major networks and media outlets that you are more than likely familiar with, or at least have heard of, such as the CW Network, NewsNation, The Hill, along with a few other notable networks, all ripe for political advertising spend.

Regardless of whether or not these are actually the reasons behind Burry’s bullish stance on this media conglomerate, it makes sense to us.

At any rate, we appreciate Dr. Burry for (subprime) lending us some inspiration for writing this stock analysis article on this specific company at this specific time, and now would certainly be a (sub)prime time to dive deeper into this media company’s stock so as to determine whether or not it may just be a play for the current and coming political cycle or perhaps more of a solid, long-term investment one should consider.

Nexstar’s stock financials

So, Nexstar is a $4.82 billion company (according to its present market capitalization) trading at a share price of $141.93 and is also accompanied by a previously mentioned price-to-earnings (P/E) ratio of 12.21 as well as an annually distributed dividend of $5.40 to its shareholders.

So far, so good, as the company’s stock is apparently undervalued relative to its intrinsic worth, not to mention that it dishes out an impressive dividend of nearly $6 per annum, rewarding shareholders for, well, doing what they do best and holding shares, and this also in itself implies that Nexstar does not have all that much trouble in generating cash, which makes sense given the nature of its particular advertising business, essentially selling seconds of real estate on its programs costing the interested advertisers more than it costs a company such as Nexstar, which, evidently, is a good thing, however, we will find out just how specifically cash flow generative this company is in a matter of a few moments.

However, before delving into the company’s cash flows, let’s keep things in order and first find that Nexstar’s executives are in charge of around $12.6 billion in terms of total assets along with nearly $10 billion in terms of total liabilities, according to its most recently updated balance sheet, which may initially seem a little high (because it is, in our eyes), however, we do understand that an operation such as this one entails a lot of continual investment(s) and long-term contracts that really do add up in the context of a behemoth such as Nexstar, or perhaps this seasoned company is actually growing and accumulating a bit of debt in the process through its operations, which might not be all that bad, as long as debt levels are being repeatedly monitored and adjusted when needed.

At any rate, so long as this company is as cash flow generative as we perceive it to be, we aren’t going to be horribly concerned with the overall state of the firm’s balance sheet, as this will enable it to slowly but surely pay off and down some of its outstanding debts and other liabilities.

With respect to the company’s income statement, growth seems to be part of the recent and current story with Nexstar, oddly enough, as the seasoned company’s total annual revenues since 2018 have risen each and every year, starting at approximately $2.7 billion in 2018, rising the following year to just north of $3 billion, $4.5 billion in 2020, $4.6 billion in 2021, leading up to its latest reported revenue figure of $5.2 billion, as reported in 2022.

This is one of those companies that certainly benefited from COVID-19 (objectively speaking, we know it sounds sort of messed up without context), as without the shadow of a doubt there were far more eyes glued to television sets and streaming platforms during this era, thus perhaps allowing a giant such as Nexstar to gain more advertising partners and even upcharge in the process for such valuable eyeballs.

Additionally, it is worth briefly noting that we also think as political cycles become more and more contentious and wars and other national and geopolitical events unravel, more and more folks will be tied to their televisions, thus, again, benefiting Nexstar in the long run and leading us to believe that continued, consistent annual revenue growth for this company is definitely not farfetched.

Moving over to the company’s cash flow statement, Nexstar’s total cash from operations have grown from a relative low of $417 million (2019) to a recent high of $1.4 billion (2022), so yeah, we would not only say that this company does a fairly good job at extracting cash from its media operations but it is also an assuring sign that it has been able to grow its cash generation capabilities in a more than meaningful way, while its net income has been generally trending upwards as well during the same timeframe.

Nexstar’s stock fundamentals

Speaking a bit more to the company’s overall profitability, according to the figures displayed on TD Ameritrade’s platform, Nexstar’s trailing twelve month (TTM) net profit margin stands at 6.82%, up against the industry’s objectively better average of 9.87%, which highlights a fact in that while some Nexstar’s media entities are truly iconic and well enjoyed by the masses, regardless of region, some are not actually all that profitable, at least yet, tied with the fact that given Nexstar’s sheer size and scale, it makes sense that its TTM net profit margin is going to be slightly smaller and less impressive than that of the competition’s average in this context given that many of its competitors are smaller and leaner, catering to and focusing more on certain regions, organically resulting in less operations and expenses and ultimately a greater overall TTM net profit margin.

While we assumed the second part to simply be the case given that it is the case with many other companies and their brands, we do hope that Nexstar is continuously looking into and maybe even seriously considering the sale of some of its expensive (in comparison to revenues generated) operations so as to better streamline the overall organization’s profitability, but of course, at the same time, some of the company’s brands are quite notable and valuable and might even be inching closer and closer to overall profitability.

Ultimately, time will tell.

As it relates to the company’s TTM returns on both assets and investments, also according to the figures displayed on TD Ameritrade’s platform, Nexstar’s, once again, trail the industry’s respective averages, with, for example, the company’s TTM return on assets listed as 2.78% to the industry’s listed average of 4.64%, which isn’t all that large of a difference, especially, again, when considering how long it might take for some of the returns to be fostered through the cold hard numbers given the extent of the conglomerate’s operations, as Nexstar has a lot of assets to tend to and produce some sort of return(s) from, whereas a smaller station host or broadcasting platform will likely find it slightly easier to eek out returns on these fronts.

Should you buy Nexstar stock?

We get it, Michael Burry, we get it.

Whether viewing it as a cyclical play or a longer term investment holding for one’s individual portfolio, Nexstar, all things considered, doesn’t look all that bad at the moment.

With more eyes on phones, tablets and televisions, all too copious amounts of reported turmoil in and around the United States, we don’t see many reasons for Nexstar’s annual viewership and revenue figures to plateau anytime soon.

In sum, the company’s stock (NASDAQ: NXST) does appear to be trading at a discount to its actual worth, there are clear growth catalysts at play, it issues and can seemingly afford to issue the sizable dividend it currently does, its balance sheet is in good condition, its total annualized year-over-year (YOY) revenues have been growing at a comforting, demanding rate, its cash flows are in mint condition and while its TTM net profit margin and aforementioned return metrics are lagging ever so slightly behind, it is our perspective that this largely comes with the territory of being as large and expense-heavy as Nexstar is.

At this moment in time, we deem it most appropriate to offer this company’s stock a “buy” rating, and evidently not just because Dr. Burry seemingly agrees.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.