Nexstar Media (NXST, Financial) (NXST - $57.73 - NASDAQ) is one of the largest television broadcasting companies in the US after its recently-closed acquisition of the Tribune television assets, Nexstar was caught in the market downdraft given its exposure to two factors of concern to investors - advertising exposure and leverage. Advertising is considered one of the fastest expenses that companies can cut, however, advertising (ex. political) makes up 40% of NXST's sales with most of its sales growth coming from retransmission fees. About 70% of these fees were renegotiated in 2019 with the remaining 30% driving growth for 2020/21. Also, with the "stay in place" restrictions nationwide, TV advertising is likely to be cut less than other forms of advertising. Political ad spend had been stronger than expected thanks to Michael Bloomberg, but the bulk of the political spend occurs after Labor Day. Regarding leverage, the company closed the Tribune deal with lower than expected debt due to asset sales and refinanced its higher cost, near-term debt such that there are no principal payments due until 2023. With a fairly variable cost structure and cost savings from the Tribune integration, the company should still generate strong free cash flows.
From Keeley Asset Management's Small Cap Dividend Value Fund first-quarter 2020 shareholder commentary.
