Nexstar Media Group (NASDAQ: NXST), the largest television station owner and operator in the U.S., saw a steep fall in its ad sales earlier in the pandemic. Consequently, the company’s stock lost 24% of its value so far this year, and currently stands at $87. And, we believe it is a good time to enter Nexstar’s stock. This is taking into account Nexstar’s massive reach with its market-leading stations, sites, and local broadcast record of being an effective medium for viewers to stay informed from the latest pandemic developments to the upcoming elections. In the first six months of this year, the company’s political advertising revenues have increased from around $4 billion in 2019 to a whopping $77 billion in 2020. In addition, core advertising revenue also grew by a robust 38% during this period, suggesting that advertisers will likely continue to allocate their spending on Nextar’s broadcasting and digital platforms in the near term. Our conclusion is based on our detailed comparison of Nexstar Media Group’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
It should be noted that the company stands to benefit from the broadcast industry’s massive reach to 63% of U.S. TV households. The 2019 merger with Tribune made Nexstar the top broadcast affiliate for Fox and CBS as well as the number-two partner for NBC and number three for ABC. In addition, Local Advertising is an important source of revenue for the company and is generated by selling ad time to businesses such as restaurants, retailers, to name a few. As the nation’s largest producer of local news programming, the company is proving to be an effective medium for both brands and politicians in the current challenging times.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid a Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 56% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
Nexstar Media Group Performance During 2020 Coronavirus
NXST’s stock declined from levels of around $127 in mid-February (the pre-crisis peak) to roughly around $46 as of March 23 (as the markets bottomed out) – implying that the stock lost as much as 64% of its value from its approximate pre-crisis level. It then rallied to levels of around $87, rising by 91% since March 23. However, it is still down 24% from levels of $115 seen in early January.
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
The S&P 500 index declined from levels of around 3,386 in mid-Feb (pre-crisis peak) to levels of around 2,237 as of Mar 23 (as the markets bottomed out), implying the index lost 34% of its value from its approximate pre-crisis peak. It then rallied to levels of about 3,484 currently, rising by 56% since Mar 23. It is also up 8% from levels of 3,231 seen in early January.
2007-08 Financial Crisis
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Nexstar Media Stock Performance Over 2007-08 Financial Crisis
NXST stock witnessed something worse during the 2008 downturn. NXST’s stock declined from levels of over $9 in October 2007 (the pre-crisis peak) to roughly 65 cents in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 93% of its value from its approximate pre-crisis peak. However, NXST’s stock recovered post the 2008 crisis, to levels of about $4 in early 2010, rising by 438% between March 2009 and January 2010.
S&P 500 Performance Over The 2007-08 Financial Crisis
S&P 500 Index fell 51% from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124 – rising by about 48% between March 2009 and January 2010.
How Do Nexstar Media Group’s Fundamentals Look In Recent Years?
Nexstar’s revenues grew a robust 173% from $1.1 Bil in 2016 to $3.0 Bil in 2019. In addition, earnings growth, on a per-share basis, was higher by 68% from $2.98 in 2016 to $5.01 in 2019.
Does Nexstar Media Group Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Nexstar’s liquidity was approximately $665 million in cash (as of June 30), with access to another $140 million under its revolving credit facility. The company’s total debt increased from $4.0 billion in 2018 to $8.5 billion in 2019 (due to merger with Tribune Media Company), currently standing at $8 billion at the end of Q2. Despite a substantial amount of debt, Nexstar stated that it will be able to service this through 2020 and does not anticipate any liquidity or covenant issues through the balance of the year.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-October 2020: Poor Q2 results and lukewarm Q3 expectations, but continued improvement in demand, a decline in the number of new cases, and progress with vaccine development buoy market sentiment
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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