Broadcast television has gotten a bad rap in recent years, as online news sources and video streaming services have outgrown traditional forms of media like broadcast television. Of course, where the eyeballs go, the ad dollars follow, which has made things very challenging for traditional media.
Nexstar Media is the largest television station operator in the US, while Liberty Global describes itself as a “leader in converged video, broadband and communications” with operations in six European countries as well as the US is holding up better than some.
A closer look is needed to determine if there might be any advantage to any of these broadcast actions. As a point of reference, the broadcast industry is trading at a price-earnings (P/E) ratio of approximately 10.5 times its three-year average of 12.9. The industry is also trading around its three-year average price-to-sales ratio of 1.0.
Nexstar Media Group (NASDAQ: NXST)
Nexstar Media seems undervalued from a P/S standpoint, but there is much more to consider when valuing broadcasters. The shift to online media sources is killing many broadcasters, so it’s critical that they get involved in the transition online. Therefore, the deals that Nexstar recently closed with major online players, as well as its strong fundamentals, suggest that a bullish view may be appropriate.
Based on its P/E of approximately 6.8, Nexstar Media appears significantly undervalued relative to its industry and relative to its five-year average P/E of 9.9. However, it is trading in line with industry P/S at 1.1 and below its five-year average P/S of 1.4. These low multiples look particularly attractive considering that the company recently reached a multi-year deal with YouTube TV start up 59 stations and a multi-year distribution deal with Hulu.
Unfortunately, Nexstar fell well below earnings consensus in its last earnings report in late February, which may be responsible for much of the year-to-date decline. However, if you look at the longer term, you see consistent revenue growth over the last five years and stable net income margins at around 18% to 18.5% over the last three years.
Nexstar is also generating many Free cash flow, in excess of $1 billion in the last three years, and has a strong balance sheet. It’s also paying down its debt, paying off nearly $3 billion in 2022 while issuing about $2.5 billion.
Finally, Nexstar pays a dividend with a yield of 3.2% and has increased it annually for the last 10 years.
What is the target price for NXST shares?
Nexstar Media has a Strong Buy consensus rating based on three Buy, one Hold and zero Sell ratings assigned over the past three months. At $212, the average Nexstar Media Share Price Target implies a potential upside of 35.4%.
Global Liberty (NASDAQ:LBTYA)
With a P/E of 15.6, Liberty Global looks overvalued despite its P/S of 1.2. A look at its fundamentals reveals a company with steadily declining revenue, including a nearly $3 billion drop from 2021 to 2022. So a bearish view seems appropriate.
Liberty Global has a more diversified business that includes broadband as well as streaming, but there isn’t much action on the online transition front.
It has highly volatile net income margins ranging from -14% in 2020 to over 100% in 2019 and 2021. While 2022 saw a more normal net income margin of 20.5%, the steady decline in revenue it is a concern. Additionally, Liberty Global’s free cash flow has been falling along with its revenue.
Finally, Liberty Global does not pay dividends, so it is not even a potential addition to a dividend portfolio.
What is the target price for LBTYA shares?
Liberty Global has a Moderate Buy consensus rating based on three Buy, three Hold and zero Sell ratings assigned over the last three months. At $29.08, the average Liberty Global Share Price Target implies a potential upside of 56.6%.
Conclusion: Bullish on NXST, Bearish on LBTYA
Overall, there’s not much to dislike about Nexstar, while there’s not much to like about Liberty Global. Analyst views on Liberty Global are mixed, likely due to the major risks of investing in a company with steadily declining revenue.
Meanwhile, Nexstar shows stability and is taking clear steps to participate in the transition online. Finally, Nexstar even pays a dividend, an added bonus that makes for a decent dividend game.