Nexstar Media: A Hidden Gem in a Consolidating Broadcast Landscape?

The broadcast industry is in the midst of a seismic shift. Cord-cutting, streaming dominance, and regulatory uncertainty have left many traditional players scrambling. Yet, one company—Nexstar Media Group (NASDAQ: NXST)—is leveraging its scale, cash flow, and strategic discipline to carve out a dominant position. At a P/E ratio of just 9.0x and an EV/EBITDA of 6.4x, Nexstar's valuation appears strikingly undervalued relative to its peers and historical averages. Is this a buying opportunity in a consolidating industry, or a trap for the unwary?

A Fortress Balance Sheet, Built for Growth
Nexstar's financials stand out in an era of media sector volatility. Despite a 3.9% decline in Q1 2025 revenue to $1.23 billion, the company generated $348 million in Adjusted Free Cash Flow, fueled by disciplined expense management and record distribution revenue of $762 million. Its leverage ratios—first lien net leverage of 1.67x and total net leverage of 2.93x—are comfortably below covenant thresholds, while its cash position has swelled to $253 million. This financial flexibility allows Nexstar to pursue three key strategies:

1. Dividend Discipline: Nexstar raised its dividend by 10% in early 2025, marking its 12th consecutive annual increase. The yield of 3.45% (91st percentile among S&P 400 companies) is bolstered by a conservative 55% payout ratio, ensuring sustainability even amid revenue headwinds.
2. Strategic Acquisitions: In Q1 2025, Nexstar spent $22 million to acquire WBNX-TV in Cleveland, creating a new duopoly in the 19th-largest U.S. market. Such moves reinforce its local advertising dominance and distribution reach.
3. Shareholder Returns: The company allocated $132 million to dividends and buybacks in Q1, reducing shares outstanding by 0.9%. While repurchases slowed from 2024 levels, management has prioritized debt reduction and M&A—a prudent move in an industry ripe for consolidation.

Why Consolidation Benefits Nexstar
The broadcast landscape is consolidating, and Nexstar is positioned to win. Over the next 18 months, 60% of its distribution contracts will be up for renewal, creating leverage to negotiate higher affiliate fees from cable and streaming partners. Meanwhile, the 2026 political advertising cycle—a $6 billion industry—could supercharge revenue, as Nexstar's 188 stations and CW network provide unmatched reach.

Regulatory tailwinds further favor consolidation. The FCC's relaxation of ownership rules could unlock acquisitions in markets where Nexstar already holds significant stakes. For instance, its recent Cleveland duopoly reduces competition and amplifies pricing power.

Valuation: A Discounted Bargain or Overlooked Risk?
At a current stock price of $172, Nexstar trades at a 9.0x P/E and 6.4x EV/EBITDA, far below its historical averages and peer multiples. Analysts estimate a fair value range of $67.99 to $172.32, with an average of $123.35—suggesting a potential downside. However, this analysis may underweight the company's strategic advantages. Consider:

• Nexstar's 34% EBITDA margin is among the highest in the sector, underpinning its ability to generate cash despite revenue softness.
• Its dividend yield and buyback discipline provide a “floor” for the stock, while M&A activity could drive multiple expansion.
• The $6.5 billion debt load is manageable given its low leverage ratios and $1.8 billion LTM EBITDA.

Risks: Cord-Cutting, Debt, and Execution
No investment is risk-free. Nexstar's reliance on traditional advertising exposes it to cord-cutting and streaming competition. While distribution renewals and political ad cycles offer near-term stability, long-term growth hinges on adapting to digital trends—a challenge for legacy media firms.

Debt, though well-managed, remains a concern. A sharp economic downturn could pressure margins and limit flexibility. Finally, regulatory approvals for M&A deals are never certain, and missteps in negotiations could dilute shareholder value.

The Investment Thesis: Buy the Discount, Bet on Consolidation
Nexstar's valuation is a rare opportunity. At 6.4x EV/EBITDA, the stock is pricing in worst-case scenarios—a steep discount to peers trading at 8–10x. If the company executes on its M&A pipeline, renegotiates distribution deals, and captures political ad tailwinds, multiples could expand sharply.

Entry Point: With shares at $172, investors may consider scaling into positions near $150–$160, where the stock trades at a 15% discount to its 2024 highs. A stop-loss below $140 would guard against valuation compression.

Final Take
Nexstar is a paradox: a traditional media company thriving in a digital world, a consolidator in a shrinking industry, and a dividend stalwart in a low-yield era. While risks exist, its fortress balance sheet, disciplined capital allocation, and strategic M&A pipeline make it a compelling play on a sector's evolution. For investors willing to look past short-term headwinds, Nexstar's discounted multiples could prove a bargain.

As always, consult a financial advisor before making investment decisions.