Analyst finds a lot to like at Nexstar


Nexstar Broadcasting GroupWells Fargo has decided to initiate coverage of television group Nexstar, and it does so with high expectations, to say the least. Analyst Marci Ryvicker kicked off her assessment of the group with the sentence, “We view NXST as one of the best run broadcasters in the industry, with significant leadership in both retransmission consent and digital.”

Among other things, she cited a recapitalized balance sheet, a fresh dividend and enhanced liquidity in the wake of an equity offering as positives. It’s current attractive pricing “…should warrant greater attention from the investment community even as we enter a non-political year,” she observed.

“Therefore, we are initiating coverage with an Outperform rating and a $17-19 valuation range. We also introduce our 2012 and 2013 ests as follows (2012E/2013E): revenue of $378.6MM/$473.6MM, EBITDA of $149.2MM/$171.3MM, EPS of $1.19/$1.06 and FCF per share of $2.78/$3.10.”

Ryvicker expects significant increases in free cash flow thanks to the group’s accretive acquisitions, and said the value of Nexstar’s M&A activity is significantly the fact that it was done without damage to the group’s leverage level.

It may be tough to maintain its current leverage this year simply due to the lack of political and Olympics revenue, she believes it could bounce back and then some in 2014.

The company is also in a good place regarding both retransmission consent and reverse compensation, with gains expected in retrans and locked-in contracts preventing too much damage on the reverse compensation side.

Ryvicker concluded, “Core ad outperformance should continue. NXST has outperformed the industry on a core ad basis given its hyper-focus on local, compensation structure, and a favorable affiliate and geographic mix. We don’t see this changing.” The company is rated Outperform.