Nexstar's Potential Upside Amid Streaming Disparities: Analyst Take On Advertising and Retransmission

Benchmark analyst Daniel Kurnos reiterated a Buy rating on Nexstar Media Group, Inc NXST and set a price target of $225.

Following up on his state of the advertising union published yesterday morning, Nexstar management released their updated deck highlighting many disparities between the streaming investment narrative and the realities on the ground. 

While unlikely to necessarily sway investor opinion, there were at least a few incremental talking points that he thought were worth reiterating as incremental cases for support, especially at current levels. 

Beyond that, though, and in conjunction with his checks, he believes Nexstar may have a unique near-term narrative centered around retransmission, free cash flow, and guidance that could produce relative outperformance in the coming quarters. 

Kurnos gets that the fixation on a recession and possible deteriorating ad environment could overpower any thesis. 

In revisiting his work over the past couple of weeks and revisiting consensus expectations, Kurnos thinks there could be some modest upside to both CW revenue and core in 2H23, especially given the positive crowd-out dynamic that should still exist in 4Q23. 

Assuming current trends hold, general market results have gotten modestly better, which should help CW, while the national portion of the core could also be on pace to show modest improvement. 

However, NewsNation is still tied heavily to the lagging DR marketplace. Nexstar’s 29 ABC stations should benefit from the decision to broadcast Monday Night Football games throughout the 2023 season, with further CW consolidation, renewed affiliate agreements, and a much less costly slate possibly producing upside-to-loss forecasts.

The conversation will likely remain acutely focused on retransmission, including the impact of the recent and ongoing blackouts, subscriber declines, and the effect on the annual FCF guidance issued in late February, where he believes there could be a material positive divergence between expectations and results.

Kurnos projects 3Q revenue of $1.15 billion vs. consensus of $1.16 billion and EPS of $2.64 vs. consensus of $1.11.

Price Action: NXST shares traded higher by 2.85% at $142.42 on the last check Tuesday.