Wells Fargo Sees Significant Upside in Nexstar (NXST) Following MEG Financing; Valuation Range Raised to $75-$96
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Wells Fargo analyst Marci Ryvicker reiterated an Outperform rating and lifted her valuation range on Nexstar Broadcasting Group (NASDAQ: NXST) to $75-96 from $65-67, saying they believe there is still so much potential upside to this post the Media General (NYSE: MEG) financing.
Ryvicker commented, "Last night, NXST finally priced the rest of the MEG-related financing, which came in at LIBOR +3.00% (0.0% floor), which was pretty much as expected. Mgmt. also essentially raised its PF FCF guide by $40MM, or $0.85/share, which was also relatively in line. Now it's time to focus on what this New Co. could look like post close - and we really like what we see. From a high level, we could have a company that is right at the 39% cap (although this could be lower depending on the auction) and levered just about 4x by year-end 2017, which means there could be PLENTY OF CASH for dividends (we could see anywhere from a 4-6% yield by year-end 2017) and/ or buybacks ($1B over a 3-year period maybe?). We also think there could be anywhere from $25-50MM of incremental operating synergies, which would add another $0.28-$0.67 to our base case PF FCF estimate of $12/share. Based on the various sensitivity analyses we discuss in this note, we believe that PF NXST-MEG is worth anywhere from $75-96/share, which represents potential upside of 40-80% from today's close."
The firm is not changing FY16, FY17 EPS estimates of $3.96/$2.67 at this time.
Shares of Nexstar Broadcasting Group closed at $53.50 yesterday.
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