They say linear TV is dead, but don’t tell that to Nexstar Media Group (NASDAQ:NXST). The TV-broadcasting company just posted record revenue in its first fiscal quarter — and easily topped earnings estimates.
Nexstar is the largest owner of TV stations in the country, and it also owns various networks, including the CW and the Food Network. The stock was among Thursday’s top gainers, popping 6% to $178 per share. The stock has returned 11% year to date.
Record revenue in Q1
Nexstar owns more than 200 TV stations in 117 U.S. markets, reaching 220 million people or about 68% of the population. It also owns various networks, including the CW, the Food Network, NewsNation, Antenna TV, and Rewind TV. Nexstar also owns the political publication The Hill and WGN Radio in Chicago.
In the first quarter, the firm generated $1.28 billion in revenue, roughly in line with expectations and up 2% year over year. Nexstar’s revenue received a boost from distribution income, which its TV stations generate from cable operators and other platforms for retransmission and through carriage fees, affiliation fees, and spectrum. In fact, the company’s distribution revenue jumped to an all-time high for the first quarter, rising 4.5% to $761 million.
Nexstar’s revenue was also buoyed by several other factors, including a new multi-year agreement with KAZT-TV in Phoenix, the nation’s 11th-largest television market, where it also added a CW network affiliation. The company also transitioned all 117 of its markets to its own national sales organization from third-party representation. In addition, Nexstar saw prime-time ratings growth at the CW in the last quarter.
All of these revenue boosts helped Nexstar dramatically increase its earnings, notching net income of $167 million, up 90% year over year. Its earnings soared to $5.16 per share, which smashed the consensus estimates of $3.97 per share.
The earnings spike was due to higher revenue but also a 4% reduction in operating expenses driven by reduced amortization of the broadcast rights at the CW and a $40 million gain on the sale of its ownership interest in Broadcast Music Inc.
Nexstar was also able to trim the losses at the CW, the nation’s fifth-largest broadcast network, by $50 million, and reduce its debt by nearly $30 million. Additionally, the company’s net income margin rose to 13% from 7% in the same quarter a year ago.
Political season ahead
Nexstar has a lot of momentum heading into a presidential election this fall, when it typically sees a huge spike in political advertising. Last quarter, advertising revenue was down 1% to $512 million, but management is expecting a windfall in ad revenue for the rest of this year.
“Looking ahead, we remain confident that Nexstar will deliver another strong year of financial results and expect to build momentum through 2024, given the anticipated record-level of political spending this presidential election cycle,” said Chairman and CEO Perry Sook in the earnings report.
In the last presidential election year, Nexstar recorded a $247 million increase in core ad revenue, and its political ad revenue jumped from $52 million in 2019 to $508 million in 2020. Thus, Nexstar could see a similar jump this year.
The CW also signed a seven-year deal with NASCAR to broadcast its Xfinity Series starting this fall, which should provide more fuel for Nexstar’s revenue.
Nexstar is a consensus Buy among analysts with a median price target of $200 per share. It is also relatively cheap with a P/E ratio of 17 and a forward P/E of 6. It is a Buy right now.
