Nexstar Media Group

Excluding Tegna, which is now included in Nexstar's results but still prohibited from being integrated pending DirecTV's lawsuit, Nexstar second-quarter revenue rose 5% from last year, while its adjusted EBITDA margin expanded by 270 basis points, both driven by strength in political advertising.

Why it matters: Because it relies on linear television, we believe Nexstar's business is in long-term decline. However, sales and profits should spike every other year because of political advertising. It appears political advertising will be strong this year and propel second-half results. Excluding Tegna, political advertising nearly doubled from two years ago, and total ad revenue was up 2%. World Cup games on Nexstar's Fox affiliates also provided a boost, as they'll do again in the third quarter. Distribution revenue was up 3% excluding Tegna. Higher rates have helped offset the losses of traditional cable bundle customers, but growth in virtual pay TV bundles, like YouTube TV, as well as higher revenue from the The CW Network and success at NewsNation have also been mitigators. Nexstar recently came to agreements to put CW content on ESPN and Roku.

The bottom line: We maintain our $205 fair value estimate, which is dependent on Nexstar completing its Tegna merger and integrating the businesses. Our stand-alone fair value estimate had previously been $180. Nexstar's trial is set for July 2027, but Nexstar expects a hearing this fall to see if it can loosen the injunction that prevents it from integrating or having any role in Tegna's current independent operations. Today, the Federal Communications Commission lifted the 39% coverage cap that should've clearly prevented the Nexstar/Tegna merger. We expect this action to be challenged in court, because it's not clear to us that any body other than Congress has the authority to lift this cap. We expect the trial to consider issues beyond the cap anyway.

Our fair value estimate is $205 per share, implying an enterprise value/adjusted EBITDA ratio of about 6.0 on our 2027 forecast. We assume the firm will retain ownership of Tegna following its March 2026 acquisition, but the deal is subject to litigation that could force a divestment. In that scenario, we'd expect to reduce our fair value estimate by less than 10%.

Our outlook is similar with or without Tegna. We expect long-term top-line headwinds in either scenario. However, we see opportunities for cost reductions if the companies combine and a bit more negotiating power with pay-TV distributors, which more than offsets the merger premium Nexstar is paying.

We expect revenue to rotate between growth in even years—driven by political elections and the Olympics—and contraction in odd years, due to the absence of these major events. On average, we project revenue to decline 2% annually over our forecast. While Nexstar should be able to secure retransmission rate increases from pay-TV distributors, we expect that the national networks will likely demand that revenue be returned to them through higher reverse compensation. Political advertising will mitigate this damage in the short term, but we expect future declines in the number of linear-TV viewers and the continued shift to digital advertising will cause core advertising revenue to decline.

Operating margins will follow a similar pattern to political ad revenue. Even years will produce margin spikes, while odd years will see margins fall. The need for network content will keep production and content costs high. As advertising and retransmission revenue decrease at a faster rate than costs, margins should shrink. We project adjusted EBITDA margin to generally trend down slightly over our forecast, from 31% in 2025 to 28%-29% by the back half of our forecast.

Generally, we believe linear-television dynamics are rapidly changing to Nexstar’s detriment. We believe that pay-TV distributors will be far more resistant to increasing retransmission fees and may replace Nexstar’s content with direct-to-consumer options. While Nexstar’s digital platforms may recapture some lost advertising initially, advertisers will continue to spend where they can maximize reach, and this is increasingly outside the local news ecosystem that Nexstar heavily relies on.

We assign Nexstar a no-moat rating. While the firm exhibits a handful of competitive strengths, none is material enough to definitively declare the presence of a moat. More importantly, even if Nexstar had a durable competitive advantage, any economic profit defended by that competitive advantage is being weakened as the pay-TV industry erodes.

Most of Nexstar's revenue comes from fees that pay-TV distributors pay to carry Nexstar's stations and advertising within traditional TV telecasts. With pay-TV subscribers and traditional television viewing in long-term decline, Nexstar’s business should weaken.

Local news drives most of Nexstar's advertising revenue, but viewership is declining, as linear-TV viewing is being taken over by streaming, and online news offerings provide an alternative. The national networks like NBC and Fox, which supply primetime content to Nexstar’s stations, have offset some of their own lost audiences by either selling content to the streaming platforms or creating their own direct-to-consumer offerings. This avenue is unavailable to local station owners like Nexstar because they lack ownership of most of the premium content they distribute.

The evolution in viewing habits has also led the national networks to demand higher fees from local station owners like Nexstar to receive the rights to distribute national programming. We believe that the national networks increasingly hold the upper hand in negotiations, due to the relatively higher viewing of national content versus local content and the alternative they now have to reach viewers via their streaming offerings.

We expect declines in the number of pay-TV subscribers will continue to shrink linear television’s revenue potential and threaten the existence of the broadcast distribution model as a whole. The acquisition of Tegna can lead Nexstar to retain a larger portion of the pay-TV pie, but the greater scale doesn’t change the secular challenge.

Nexstar does have some advantages, but none strong enough to warrant a moat even if it weren't in a dying industry. Nexstar's lack of ownership of most of the content it airs leaves its position difficult to defend. Of the three types of content offered by Nexstar—local news, network programming, and syndicated programming—it only owns local news. Acquisitions of the Tribune and The CW have allowed Nexstar to produce original content and acquire sports rights, but not enough to justify sufficient intangible assets to warrant a moat.

The strongest case for a moat is the regulatory regime. The Federal Communications Commission prohibits a pay-TV distributor from offering a nonlocal broadcast to replace a local channel. Any pay-TV distributor, such as Comcast or Charter, that wants to carry local channels needs to negotiate a distribution rights contract with the local station in each market. The need to secure rights locally provides demand for the thousands of existing television stations nationwide. As the largest station owner, Nexstar’s large viewership of 130 million households allows the firm to advertise in national markets that are otherwise unavailable to smaller station portfolios. Currently, most production and ad selling are localized, but Nexstar’s scale provides the opportunity to regionalize news broadcasts and sales teams, which will become especially important as revenue decreases and compresses margins.

FCC regulations also require stations to acquire licenses to operate, providing a barrier to entry. The FCC tends to be less willing to issue licenses in well-served markets, leaving only smaller and less desirable markets for potential entrants. The regulation prohibiting concentration of station ownership has historically given broadcast networks no alternative to finding affiliates. The FCC voted to waive this regulation, but pending lawsuits contend that it does not have the authority to do so.

Owning Tegna gives Nexstar even more negotiating power over pay-TV distributors, which will be unable to do without the size and scale the firm brings.

Nexstar’s ownership of The CW provides it with premium sports and unscripted content while generating reverse compensation fees from competitors.

Nexstar can take advantage of increased politicization in US elections through higher political advertising revenue during election cycles.

Advertising spending is increasingly being diverted from broadcast and traditional media to digital methods of delivery, threatening Nexstar’s advertising revenue.

Alternative distribution methods for major sporting events, such as the Super Bowl on Tubi and an ESPN streaming offering, threaten to remove a pillar of the pay-TV bundle: sports exclusivity.

Cord-cutting has led to a continuing decline in pay-TV subscribers, limiting the largest contributor to Nexstar’s revenue, retransmission fees.