Nexstar Media Group

• The Bottom Line: Nexstar Media Group is America's largest owner of local television stations, operating as a powerful, government-licensed toll booth on the information highway that generates enormous and predictable streams of cash.
• Key Takeaways:
• What it is: A media giant that owns and operates around 200 local TV stations across the United States, including affiliates of major networks like CBS, NBC, ABC, and FOX, as well as The CW Network.
• Why it matters: It exemplifies a business with a strong economic_moat built on regulatory licenses, generating highly predictable revenue from locked-in contracts, making it a potential dream for investors who prioritize free_cash_flow.
• How to use it: To analyze Nexstar, an investor must look past the “dying TV” narrative and focus on its dual revenue engines—stable retransmission fees and cyclical advertising—and evaluate management's skill in capital_allocation.

Imagine you own the only bridge into a bustling, prosperous city. Every car, truck, and bus that wants to enter must pay you a toll. You don't own the vehicles or their cargo, you just own the essential bridge. Your revenue is stable, predictable, and grows steadily as you periodically raise the toll price. In the media world, Nexstar Media Group (ticker: NXST) is that bridge owner. Nexstar is the largest owner of local television stations in the United States. When you turn on your TV to watch the local evening news, a primetime show from a major network, or a big NFL game, there's a good chance you're watching it on a station owned by Nexstar. They are the local infrastructure—the “last mile” that delivers content from big networks into tens of millions of American homes. This “bridge” business model has two main engines that generate money: 1. Retransmission Consent Fees: This is the core of the “toll booth” analogy and the secret to Nexstar's success. By law, cable and satellite providers (like Comcast, DirecTV, or YouTube TV) cannot simply carry a local station's signal for free. They must get permission—or “consent”—and pay a fee for it. These fees are locked into multi-year contracts, providing Nexstar with a stable, recurring, and growing revenue stream that is completely independent of ratings. It's the toll paid by the cable companies to use Nexstar's bridge. 2. Advertising Revenue: This is the more traditional way TV stations make money. They sell commercial slots to local car dealerships, lawyers, restaurants, and national brands. This revenue is more cyclical and tied to the health of the economy. Crucially, it includes a massive, predictable windfall every two years from political advertising during election cycles. By owning the largest portfolio of these local “bridges,” Nexstar has built a formidable cash-generating machine, often misunderstood by a market obsessed with the latest streaming service.

“The best business is a royalty on the growth of others, requiring little capital itself.” - Warren Buffett ¹⁾

For a value investor, a company like Nexstar is fascinating because it checks so many boxes that icons like warren_buffett and Benjamin Graham look for. The market often sees “old media” and yawns, but a deeper look reveals the hallmarks of a classic value investment.

• A Wide and Durable Economic Moat: The most attractive feature of Nexstar is its powerful economic moat. The Federal Communications Commission (FCC) grants licenses to operate broadcast stations. You can't just decide to start a new TV station in a market where one already exists. This creates a local duopoly or oligopoly structure, a formidable barrier to entry that protects Nexstar's profits from new competition. This government-granted license is like the deed to the “bridge” in our earlier analogy.
• A Predictable Free Cash Flow Machine: Value investors obsess over Free Cash Flow (FCF)—the actual cash profits left over after running the business. Because retransmission fees are set in multi-year contracts, a huge portion of Nexstar's revenue is highly predictable. This isn't a “hope and pray” business; it's a “sign the contract and collect the cash” business. This predictability allows management—and investors—to forecast future profits with a much higher degree of certainty than for, say, a tech startup.
• Intelligent and Shareholder-Friendly Capital Allocation: What a company does with its cash is one of the most important determinants of long-term shareholder returns. Nexstar's management, led by founder Perry Sook, has a long and proven track record of excellent capital_allocation. They use their massive FCF for four key purposes:

1. Paying down debt: After making a large acquisition, they aggressively pay down debt, strengthening the balance_sheet.

  2.  **Acquiring more stations:** They act as shrewd consolidators in the industry, buying smaller station groups and plugging them into their efficient operating model.
  3.  **Buying back their own stock:** When they believe their stock is trading below its [[intrinsic_value]], they buy back shares, increasing each remaining shareholder's ownership stake in the business.
  4.  **Paying a growing dividend:** They consistently return cash directly to shareholders through a dividend that has grown at a rapid pace.
  This disciplined approach to managing cash is a massive green flag for value investors.
*   **Potential for Market Mispricing:** The biggest risk for Nexstar is also its biggest opportunity for investors: the narrative of "cord-cutting" and the death of traditional TV. Many market participants lump Nexstar in with all "legacy media" and assume it's in terminal decline. This narrative can depress the stock price to a level far below the company's actual cash-generating power. For a value investor, this gap between a pessimistic market perception and a resilient business reality is where a [[margin_of_safety]] can be found.

Instead of getting lost in industry jargon or daily stock price movements, a value investor should focus on a few key areas to understand the health and valuation of Nexstar.

• Free Cash Flow (FCF) Yield: This is arguably the most important metric. Forget the Price-to-Earnings (P/E) ratio, which can be misleading due to large, non-cash depreciation charges from past acquisitions. FCF is the real cash profit.
  • Formula: `Free Cash Flow Per Share / Current Stock Price`
  • What it reveals: It tells you what percentage return you would get if the company paid out all its free cash to you. A consistent FCF yield of 10%, 15%, or even higher suggests the business is generating a ton of cash relative to its market price and is likely undervalued.
• Revenue Mix (Retransmission vs. Advertising): An investor should track the percentage of revenue coming from each stream.
  • What it reveals: You want to see the stable, high-margin retransmission revenue growing consistently. This is the bedrock of the investment thesis. While advertising revenue, especially political, provides a nice boost, the retransmission line item is the true measure of the moat's strength.
• Leverage Ratio (Net Debt / EBITDA): Nexstar uses debt to fund its large acquisitions, so monitoring its debt level is crucial.
  • Formula: `(Total Debt - Cash) / Earnings Before Interest, Taxes, Depreciation, and Amortization`
  • What it reveals: This shows how many years of cash earnings it would take to pay back all its debt. Nexstar's management typically aims to get this ratio below 4x. Seeing this number steadily decline after an acquisition is a sign of disciplined financial management and risk reduction. It's a key part of risk_management.

• Follow the Cash, Not the Narrative: The market screams about cord-cutting. You should calmly read the quarterly reports and look at the actual cash flow statements. Are the retransmission contracts being renewed at higher rates? Is the company generating more FCF this year than last? The numbers often tell a different, more positive story than the headlines.
• Understand the Two-Year Cycle: Don't be surprised when revenues and profits dip in an odd-numbered year (e.g., 2023, 2025). This is a normal part of the business cycle due to the absence of massive political ad spending. In fact, market weakness during these “off-years” can present excellent buying opportunities for long-term investors who understand the predictable windfall coming in the next election year.
• Bet on the Jockey: In investing, you're not just buying a business; you're partnering with its management. Evaluate CEO Perry Sook's long track record. Has he been a good steward of shareholder capital? Have his acquisitions created value? For Nexstar, the answer has historically been a resounding yes.

To understand why a value investor might prefer a company like Nexstar, let's compare it to a hypothetical, high-flying streaming company, “StreamFlix.”

This comparison highlights a core tenet of value_investing: it is often more profitable to buy a wonderful business at a fair price (or a fair business at a wonderful price) than it is to pay an exorbitant price for a speculative growth story. The toll booth may be boring, but it reliably fills the owner's pockets with cash.

No investment is without risk. A prudent investor must understand the arguments against Nexstar to make an informed decision.

• Dominant Market Position: As the largest player, Nexstar has significant negotiating power with both networks and cable distributors.
• Durable, Contractual Cash Flows: The retransmission fee model provides a baseline of predictable, high-margin revenue that is the envy of the media industry.
• Proven Management Team: Leadership has a multi-decade track record of creating immense shareholder value through smart acquisitions and disciplined capital return.
• Political Advertising Bonanza: The cyclical, but predictable, gusher of high-margin political ad revenue provides a massive cash injection every two years.

• Cord-Cutting: This is the primary risk. If enough people cancel their cable/satellite subscriptions (the “bundle”), the pool of money from which retransmission fees are paid will shrink. The counterargument is that local news and live sports (especially the NFL) remain essential, keeping broadcast TV relevant in cheaper “skinny bundles” and as a free over-the-air option.
• High Leverage: To grow through acquisition, Nexstar has taken on significant debt. While management has a great track record of paying it down, a severe and prolonged recession could make this debt load risky. An investor must monitor the debt_to_ebitda_ratio.
• Reverse Retransmission Fees: The major networks (like CBS and FOX) are not passive players. They are increasingly demanding a larger share of Nexstar's retransmission revenue for the right to broadcast their content. This pressure could squeeze Nexstar's future profit margins.
• Regulatory Scrutiny: As the largest station owner, Nexstar faces potential regulatory risk. Any changes by the FCC to station ownership caps could limit its ability to grow through future acquisitions in the U.S.

• free_cash_flow
• economic_moat
• capital_allocation
• margin_of_safety
• shareholder_yield
• intrinsic_value
• balance_sheet