SA/CMU Stock Pitch Competition Nexstar Broadcasting Group (NASDAQ:NXST) Christian Lamarco & Bryan Thomas

Thesis Nexstar operates duopoly markets which generate generous amounts of FCF then used in its acquisition arbitrage model. The upcoming 2016 spectrum auction provides a hedge against potential anti-trust issues and internal competition. Retransmission consent fees are a high margin revenue stream set to benefit Nexstar in the long term. The growth in political ad spend should prove to be a key driver in 2016 revenues due to Nexstar’s strategic positioning in swing states. Employing conservative estimates of all line items in a DCF valuation, we believe Nexstar’s fair value is $92, representing 59% upside.

Company Overview NXST: A television broadcasting and digital media company focused exclusively on the acquisition, development and operation of television stations and interactive community websites in medium-sized markets in the United States, primarily from 30 to 175 of 210 DMAs.

Business Model

Strategy Strategic acquisitions Funded by debt/FCF Distressed Valuations Middle Market DMAs Local ads vs national Duopolies within DMAs 8% higher margins

Trends in TV Viewers watching more TV than ever before. Local ads displacing national shift away from TV. Economics of the TV industry make disruption unlikely.

Growth Drivers / Catalysts Retransmissions Digital opportunities Larger strategic acquisitions Return capital to shareholders 2016 political ad spend 2016 Spectrum auction

The Market Consensus / Bear Thesis Advertisers are moving entirely from TV to digital. Netflix, Apple, etc. will disrupt the TV/Broadcasting industry. The company’s debt load is too much to bear. JSAs, SSAs, and Anti-Trust all remain significant threats.

Risk: Highly Leveraged Nature of the business FCF is compounding at 61% annually. TIE ratio shows steady improvement on top and bottom. Share price moving in line. Debt to assets has been decreasing. Share price moving in line.

Risk: Cable Cutters Cable users as a percentage of all tv watchers has fallen from 68% to 57% from 1996 to Displaced by ADS NXST stations still shown on DTV, DISH, etc. NXST is still paid retransmission fees from ADS subscribers.

Risk: Anti-Trust Concerns Nexstar’s duopoly operating model lends itself to possible antitrust litigation. National level Sitting at 18% of 39% cap. Within DMAs Spectrum auction protects downside.

Valuation P/E = P/FCF = EV/EBITDA = 10.75

Valuation

Q&A

Appendix (A): Share Price (1 year)

Appendix (A): Share Price (5 years)

Appendix (B): TV Still the Most Influential

Appendix (C) : Revenue Mix Changes

Appendix (D): P/FCF Valuation

Appendix (D): Comparables Analysis

Appendix (E): Spectrum Auction