Now's the Time to Make Your NXST Big Move

Television station operator Nexstar had a stellar 2020 as all-time record political ad spending soaked up available advertising minutes at high prices. The firm had been doing well for years, even before 2020's blowout results. Over the past eight years, NXST excelled across all major metrics. Continuous shareholders had to be ecstatic with total returns of almost 1,200% since Jan. 25, 2012. Results like these, when improved fundamentals paralleled huge share price increases, is the very definition of a left to right stock. Typically, high growth companies trade for premium valuations. Instead, NXST now sells for almost $23 per share less than it did at its Jan. 2020 peak of $133.30. NXST's forward P/E, based on Value Line's 2021 EPS estimate of $16.50, is now just 6.7-times. I first wrote this up last July with the stock at $85. Since then, Q3 EPS exceeded analyst projections and Q4 estimates have been raised. As of Monday, the shares had gained 29.8% plus dividends since my July article. The graphic below shows how NXST looked to me last summer, when 2020's estimate was $14.40 versus $15.45 today. The stock has done well, but is nowhere close to what I thought it might do by today's date. Yahoo Finance's July 2020 view was that NXST could hit $116.78 by July 2021. That more conservative goal was already hit earlier this month. Morningstar called NXST's July 2020 fair value as $120. It's not too far from that now. Here is my take on the stock, based on the brand new full-page update from Value Line's Jan. 29 issue (published online on Monday): My current 12-month target price is now $280.50 based on a more typical 17 multiple times the now $16.50 forward EPS estimate. If you want to be even more conservative call the projected P/E as 14x and go with a year-ahead goal of $231. Either way, there appears to be a potential double in store. Yahoo Finance calls NXST undervalued yet inexplicably only calls for $130 by this time next year. Total return to that extremely modest goal would still be almost 20%. Why assume only a 7.9-times multiple on this high-quality growth stock though? Fourth quarter 2020 results are due for release on Feb. 23, 2021. If analysts are even remotely correct, EPS should be more than double last year's fourth quarter. That is likely to provide the catalyst to get NXST moving much higher. The quote below, from NXST's Jan. 25, 2021 close, shows how ridiculously cheap the shares are. They were offered for just 6.72-times Seeking Alpha's forward estimate, while yielding north of 2%. Options on Nexstar extend out as far as Jan. 21, 2022. There are generous premiums available for selling naked puts as well as for writing covered call options at well out-of-the-money strike prices. Selling calls at $185 or higher leaves plenty of room for nice percentage gains. It also allows for subsequent roll ups if NXST really takes off. Shorting what appear on the surface to be aggressive in-the-money puts like next January's $130 strike price would still only be a commitment to own these fine shares at a net cost of around $100.85 per share. Maximum profit on those Jan. 21, 2022 $130 puts would equal $2,915 per 100-share commitment. Nexstar is a rare proven growth company at an unusually cheap valuation. Buy some shares, sell some puts or consider doing both.

Now's the Time to Make Your NXST Big Move

Earnings per share have more than tripled for the entertainment company, but NXST is now cheaper than it was a year ago.

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