The CW's Expanded Sports Programming Will Attract More Viewers In The Future

Key Takeaways

• Expansion in sports programming boosts The CW network's viewership, enhancing operating margins and company earnings growth.
  
• Strategic debt reduction and share repurchases enhance earnings per share, prioritizing shareholder value.
  
• Potential regulatory hurdles, advertising market softness, and digital shifts could limit Nexstar's growth, revenue stability, and profitability.

Catalysts

Operates as a diversified media company that produces and distributes engaging local and national news, sports and entertainment content across the television and digital platforms in the United States.

• Nexstar's strategy to expand sports programming on The CW network is expected to drive higher viewership at lower costs than previous originals, leading to improved operating margins for the network and contributing to overall company earnings growth.
  
• The expectation of further declines in Pay TV subscriber attrition and continued growth in retransmission rates, along with Nexstar's scale and superior broadcast network programming, is likely to contribute to net retrans revenue growth.
  
• Nexstar's significant political advertising revenue gains, with $491 million booked year-to-date, indicate continued strength in this area, contributing positively to revenue during election cycles.
  
• The company's focus on obtaining regulatory changes, which could allow for further consolidation and expanded ownership limits, could lead to increased market share and economies of scale, potentially improving net margins.
  
• Nexstar's ongoing capital allocation strategy, including the reduction of outstanding debt and significant share repurchases, aims to improve earnings per share (EPS) and shareholder value.

Nexstar Media Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nexstar Media Group's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.1% today to 12.1% in 3 years time.
• Analysts expect earnings to reach $633.6 million (and earnings per share of $22.64) by about December 2027, up from $578.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.8x on those 2027 earnings, up from 8.7x today. This future PE is lower than the current PE for the US Media industry at 14.7x.
• Analysts expect the number of shares outstanding to decline by 3.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.62%, as per the Simply Wall St company report.

Nexstar Media Group Future Earnings Per Share Growth

Risks

• Potential regulatory hurdles and a lack of progress on deregulation, including ownership caps and other broadcast industry regulations, might limit Nexstar's growth opportunities and affect future revenues and profitability.
  
• Softness in the advertising market, particularly in national advertising and reflective of broader economic challenges, could impact Nexstar's revenue growth and profit margins.
  
• The reliance on political advertising as a significant source of revenue introduces variability in financial performance, impacting recurring revenue stability and net margins.
  
• Subscriber attrition in the pay TV ecosystem and the uncertainty of future retransmission agreements could limit growth in distribution revenue, affecting overall earnings.
  
• Potential shifts in consumer behavior towards digital and streaming platforms, coupled with limited control over major network content distribution, might hinder Nexstar's ability to capture audience engagement and related revenue opportunities.

Valuation

• The analysts have a consensus price target of $198.5 for Nexstar Media Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $220.0, and the most bearish reporting a price target of just $175.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.3 billion, earnings will come to $633.6 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 8.6%.
• Given the current share price of $161.46, the analyst's price target of $198.5 is 18.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.