Local broadcasting and digital media company Nexstar (NASDAQ:NXST) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 2.1% year on year to $1.28 billion. It made a GAAP profit of $5.16 per share, improving from its profit of $2.96 per share in the same quarter last year.
Nexstar Media (NXST) Q1 CY2024 Highlights:
- Revenue: $1.28 billion vs analyst estimates of $1.29 billion (small miss)
- Adjusted EBITDA: $542 million vs analyst estimates of $522 million (3.8% beat)
- EPS: $5.16 vs analyst estimates of $3.97 (30% beat)
- Gross Margin (GAAP): 57.3%, in line with the same quarter last year
- Free Cash Flow of $403 million, up 59.9% from the previous quarter
- Market Capitalization: $5.54 billion
Founded in 1996, Nexstar (NASDAQ:NXST) is an American media company operating numerous local television stations and digital media outlets across the country.
Nexstar was created to consolidate local TV stations, enhancing local broadcasting efficiency. Starting with a single station in Pennsylvania, the company expanded by acquiring stations in medium-sized markets, focusing on improving access to quality local news and entertainment. This approach aimed to fill the media coverage gap in these areas, addressing the need for localized content.
The company provides local and national news broadcasting, digital media services, and network-affiliated television programming. Nexstar’s digital platforms supplement its core broadcasting services, offering an integrated media experience.
Revenue is generated through advertising, digital services, and retransmission fees from cable and satellite operators. Nexstar’s business model capitalizes on its network of local stations, attracting advertisers with targeted marketing opportunities.
Broadcasting
Broadcasting companies have been facing secular headwinds in the form of consumers abandoning traditional television and radio in favor of streaming services. As a result, many broadcasting companies have evolved by forming distribution agreements with major streaming platforms so they can get in on part of the action, but will these subscription revenues be as high quality and high margin as their legacy revenues? Only time will tell which of these broadcasters will survive the sea changes of technological advancement and fragmenting consumer attention.
Competitors in the local television broadcasting and digital media sector include Sinclair (NASDAQ:SBGI), Gray Television (NYSE:GTN), and TEGNA (NYSE:TGNA).Sales Growth
Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Nexstar Media's annualized revenue growth rate of 12.3% over the last five years was mediocre for a consumer discretionary business. 
Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Nexstar Media's recent history shows the business has slowed as its annualized revenue growth of 2.2% over the last two years is below its five-year trend.
We can better understand the company's revenue dynamics by analyzing its most important segments, Distribution and Core Advertising, which are 59.3% and 39.9% of revenue. Over the last two years, Nexstar Media's Distribution revenue (licensing and affiliate fees) averaged 4.6% year-on-year growth while its Core Advertising revenue (TV and radio ads) was flat.
This quarter, Nexstar Media grew its revenue by 2.1% year on year, and its $1.28 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 12.4% over the next 12 months, an acceleration from this quarter.
Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Nexstar Media has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 19.2%.
This quarter, Nexstar Media generated an operating profit margin of 21.4%, up 5.2 percentage points year on year.
Over the next 12 months, Wall Street expects Nexstar Media to become more profitable. Analysts are expecting the company’s LTM operating margin of 15.7% to rise to 24%.EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. 
Over the last five years, Nexstar Media's EPS grew 42%, translating into an unimpressive 7.3% compounded annual growth rate.
In Q1, Nexstar Media reported EPS at $5.16, up from $2.96 in the same quarter last year. This print beat analysts' estimates by 30%. Over the next 12 months, Wall Street expects Nexstar Media to grow its earnings. Analysts are projecting its LTM EPS of $11.87 to climb by 104% to $24.18.
Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, Nexstar Media has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 20.6%, quite impressive for a consumer discretionary business.
Nexstar Media's free cash flow came in at $403 million in Q1, equivalent to a 31.4% margin and up 10.7% year on year. Over the next year, analysts predict Nexstar Media's cash profitability will improve. Their consensus estimates imply its LTM free cash flow margin of 16.6% will increase to 22.8%.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).
Nexstar Media's five-year average return on invested capital was 9.2%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Unfortunately, Nexstar Media's ROIC has stayed the same over the last few years. If the company wants to become an investable business, it will need to increase its returns.
Balance Sheet Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly.
Nexstar Media reported $237 million of cash and $6.81 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.
With $1.52 billion of EBITDA over the last 12 months, we view Nexstar Media's 4.3x net-debt-to-EBITDA ratio as safe. We also see its $453 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.
Key Takeaways from Nexstar Media's Q1 Results
We were impressed by how significantly Nexstar Media blew past analysts' adjusted EBITDA and EPS expectations this quarter. We were also glad its Core Advertising revenue outperformed Wall Street's estimates. On the other hand, its revenue unfortunately missed. Overall, we think this was a solid quarter. The stock is flat after reporting and currently trades at $168.5 per share.
Is Now The Time?
Nexstar Media may have had a good quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
We have other favorites, but we understand the arguments that Nexstar Media isn't a bad business. Although its revenue growth has been a little slower over the last five years, its projected EPS for the next year implies the company's fundamentals will improve. Investors should still be cautious, however, as its relatively low ROIC suggests it has historically struggled to find compelling business opportunities.
Nexstar Media's price-to-earnings ratio based on the next 12 months is 8.2x. In the end, beauty is in the eye of the beholder. While Nexstar Media wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price right now.
Wall Street analysts covering the company had a one-year price target of $199.10 per share right before these results (compared to the current share price of $168.50).
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