Several days ago, Steven Cohen, the famous hedge fund manager, accumulated nearly 1.57 million shares in Nexstar Broadcasting Group, Inc. (NASDAQ:NXST). Interestingly, this company is currently in the portfolio of many other successful investors, including Joel Greenblatt and Jim Simons. Since the beginning of the year, Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) has gained as much as 157% on the market. Is Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) still a good buy after the recent significant rise in its share price?
Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) is a television broadcasting and digital media company, operating around 64 television stations and 14 digital multi-cast channels in 38 markets in the U.S. The company reported that those stations had around 12.7 million viewers, representing 11.1% of all U.S. television households. The majority of its revenue, $190.17 million, or 47.8% of the total net revenue, was generated from local advertising. National advertising ranked second, with more than $76.1 million in 2012 revenue, while the retransmission compensation and the political advertising contributed nearly $61 million and $46.3 million in sales, respectively.
Recently, the company announced impressive first quarter earnings results. Its local and national core revenues increased 32.6%, from $62.84 million in the first quarter last year to $83.3 million to the first quarter 2013. Overall, the net revenue experienced a high year-over-year growth of 34.2% to $112.2 million. The operating income grew by 1.8% to $17.8 million. Because of a much higher interest expense, its net income came in at only $705,000, much lower than net income of $3 million in the first quarter last year.
Significant leverage and high multiples
What worries me is its significant leverage. As of March 2013, it had $928 million in total debt while cash on hand stayed at only $22.6 million. However, the total net leverage ratio was 4.24, lower than the permitted leverage covenant of 7.25. Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) is trading at around $27.20 per share, with a total market cap of $799.8 million. It seems to be quite expensively valued now as its EV/EBITDA is 10.45. Compared to its much bigger peers, including DIRECTV (NASDAQ:DTV) and CTC Media, Inc. (NASDAQ:CTCM), Nexstar Broadcasting Group, Inc. (NASDAQ:NXST) has the highest valuation among the three.
DIRECTV seems to be much cheaper
DIRECTV (NASDAQ:DTV) is the top digital TV entertainment provider, operating mainly in the U.S. and Latin American region, with around 20 million subscribers in the U.S. and more than 14 million subscribers in Latin America. In the past five years, DIRECTV has proved that it was really a cash cow. Since 2008, its operating cash flow has increased from $3.9 billion to $5.63 billion, while the free cash flow rose from $1.68 billion to nearly $2.3 billion during the same period. Recently, DIRECTV has also reported strong growth in its first quarter 2013 earning results. Its revenue rose 8% to $7.6 billion with the DIRECTV Latin America’s subscriber number increasing by 583,000. Its adjusted diluted EPS grew 34% to $1.43. In the first quarter of 2013, DIRECTV spent around $1.38 billion to repurchase its shares on the market. DIRECTV is trading nearly $62 per share, with a total market cap of $35.5 billion. The market seems to value the company quite cheaply at only 6.75 times EV/EBITDA.
CTC Media has the strongest balance sheet
CTC Media, Inc. (NASDAQ:CTCM) is the Russian television operator, operating three TV channels: CTC, Peretz and Domashny. Its CTC’s signal covers more than 100 million people with an average overall audience share of around 6.9% last year. Interestingly, CTC is considered the fifth most-watched TV channel in Russia. The company had quite the disappointing first quarter earnings results. Its operating revenue increased by only 2% to $195.3 million, while the net profit experienced a year-over-year decline of 12% to $28.6 million. Its diluted EPS dropped by 14% to $0.18. CTC Media is trading at around $11.70 per share, with a total market cap of $1.85 billion. The market values CTC Media similarly to DIRECTV, at 6.6 times EV/EBITDA.
Among the three companies, CTC Media seems to have the strongest balance sheet, with little debt. As of December 2012, it had around $193 million in cash, $758 million in equity and only $13 million in debt. Its net debt/EBITDA is small, at only 1. As DIRECTV had net debt of as much as $13.6 billion, its net debt/EBITDA stayed at only 1.88. Nexstar seems to be the most leveraged of the trio, with net debt/EBITDA of nearly 5.5.
My Foolish take
Quantitatively, I like CTC Media the most with its low leverage and reasonable valuation. Moreover, it offers investors the juiciest dividend yield at 5.3%. While DIRECTV does not pay any dividends, the dividend yield of Nexstar is only 1.9%. I would not touch Nexstar at its current trading price because of its double digit EV multiple and the highest leverage level.
The article Should We Follow Steven Cohen Into Nexstar? originally appeared on Fool.com and is written by Anh HOANG.
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