Nexstar Earnings: Second-Tier Sports Rights Will Not Lead The CW to Profitability

Nexstar reported a solid second quarter as revenue met and adjusted EBITDA slightly exceeded the top end of management’s guidance. Despite the solid results, shares traded down 4% as we think investors were spooked by management's commentary about continuing to invest in sports rights for The CW. While we remain skeptical about the long-term opportunity at the network, we don’t expect Nexstar to go crazy by trying to outbid its much larger competitors. We think Nexstar will try to pick off lower-priced or unloved rights similar to the deal to carry Nascar’s second-tier Xfinity series. However, we think that these deals are unlikely to move the needle significantly even if The CW can break even on them. We are maintaining our $205 fair value estimate.