Nexstar Media Group is the largest owner of TV stations in the U.S., and it stands to see a huge revenue boost from the U.S. elections.
The presidential election is just four months away, and it could be a direct catalyst for this election stock, Nexstar Media Group (NASDAQ:NXST).
Nexstar is the largest owner of television stations in the U.S. As a result, its revenue typically jumps during presidential election years due to a flood of ad revenue generated from political advertising — from the presidential race, down to Congressional and local elections.
Let’s take a look at why Nexstar is an election stock to put on your radar.
A record amount will be spent on political ads
The stock market has historically done pretty well during presidential election years. Despite the pandemic, the S&P 500 jumped 16% in 2020, while it rose 10% in 2016 and 13% in 2012. However, it fell 38% when the Great Financial Crisis hit in 2008.
This year, the S&P 500 has gained about 16% and is on pace for another winning presidential-election year.
For the most part during presidential-election years, the stock market’s performance has more to do with the economy at the time than the race for the White House. However, it may also see a bump — or drop — following the election, based on who wins and who controls Congress.
Additionally, there are some cases where politics can have a direct impact on a stock. This is certainly the case with Nexstar Media stock.
Nexstar owns more than 200 TV stations in 116 markets, and it reaches roughly 212 million people. In addition to its local stations, it also owns The CW Network, NewsNation, and Antenna TV and has a partial stake in the Food Network, among other channels. Nexstar also owns The Hill, a publication that covers politics.
As political ads are the lifeline of political campaigns, Nexstar sees a huge influx of ad revenue from its TV stations during election years. This is particularly true in presidential-election years, when there are more races and more is at stake.
This is especially true this year, when a record $10.7 billion is projected to be spent on political ads in 2024 — a 19% increase over the 2020 election.
Nexstar thrives on political ads
Nexstar’s stock price is up by about 3% so far this year, trading at $165 per share, but Wall Street analysts anticipate a second-half surge as political ad spending ramps up.
Nexstar stock has a median price target of $207 per share, which is 25% higher than the current price. Even the low-end estimates among analysts call for a 9% jump in Nexstar stock.
In the fiscal first quarter ended March 31, this election stock had its best first quarter ever with $1.3 billion in revenue. However, that was mainly due to a 5% spike in distribution revenue, which is income received for letting platforms carry its stations and networks.
Total ad revenue was roughly flat year over year at around $512 million. This is mainly because most state primaries had no drama and little interest.
However, that should change in the second, third and fourth quarters, as a heated presidential election and Congressional races take center stage.
“Looking ahead, we remain confident that Nexstar will deliver another strong year of financial results and expect to build momentum through 2024, given the anticipated record-level of political spending this presidential election cycle,” Nexstar Chairman and CEO Perry Sook said.
As Nexstar president and Chief Operating Officer Michael Biard pointed out in the first-quarter earnings call, most of the ad spending occurs in the 10 to 12 weeks before election day in November.
A 48% revenue increase in 2020
If you look at the last presidential-election year, Nexstar generated $507 million in political ad revenue in 2020, accounting for 11% of its total revenue. The year earlier, it made just $52 million in political ads, just 1.7% of the total.
Overall, Nexstar saw a 48% increase in total revenue in 2020, thanks to the boost from political ads. Will we see the same type of increase in 2024?
Nexstar stock is dirt cheap right now, with a P/E of 14 and a forward P/E ratio of just 6. As the political campaigns heat up, this election stock should too.
