Presidential election years are typically pretty good for the stock market. In 2020, the S&P 500 finished the year up 16.3%, despite getting crushed by the pandemic bear market in March of that year. In 2016 it returned 9.5% and in 2012 the benchmark gained 13.4%.
In fact, since 1960, there have only been two down years for the S&P 500 in a presidential election year – 2008 and 2000 – and those two years were marred by the global financial crisis and dotcom bust, respectively.
There are a lot of reasons why markets perform relatively well in presidential election years and many of them have nothing to do with the election. But there is one stock in particular, Nexstar Media Group (NASDAQ:NXST), that should surge as a direct result of the election.
Buoyed by political ads
Nexstar Media is a media conglomerate that owns more local television stations than anyone else in the country. It owns some 200 stations in 116 markets and reaches about 212 million people. It also owns several networks, including The CW Network, NewsNation, Antenna TV, and the Food Network (partial stake), among others, along with The Hill, a political news website. In the fall, it was reported that Nexstar was in talks with Disney to buy ABC, but nothing has come out of that at this point.
As an owner of the most TV stations, Nexstar thrives on political ad revenue. This year, it felt the impact, but in a negative way, as political ad revenue was way down year-over-year compared to the 2022 midterms.
In the third quarter, Nexstar only generated $19 million from political ads, down from $129 million in Q3 of 2022. For the first nine months of the year, it generated only $36 million in political ads, a small fraction of its $1.2 billion in total ad revenue. That was 85% lower than 2022 through the first nine months, when political ads made $240 million out of $1.5 billion in total ad revenue.
The revenue is even higher in presidential election years. In 2020, for example, Nexstar made $132 million in political ad revenue in Q3 – which is about 26% of the total ad revenue. Net revenue that quarter was up 68% year-over-year to $1.1 billion. And for the first nine months of 2020, revenue was up 61% to $3.1 billion. Nexstar leadership fully expects to see that type of boost in 2024.
On the third quarter earnings call, Nexstar President and Chief Operating Officer Mike Biard said he expects some $11.6 billion to spend on political ads in the 2024 election cycle, with about $5 billion of that earmarked for local broadcast TV stations.
“Given our extensive footprint covering over 80% of contested elections, we are extraordinarily well positioned to take share and dollars, both locally and nationally. In fact, recent commentary from leading super PACs and election consultants reinforces our view that local broadcasters will continue to capture the largest share of political ad dollars in the 2024 cycle,” Biard told analysts.
A great buy right now
Nexstar is expected to offer guidance and an outlook for 2024 when it releases its fourth quarter and year-end earnings in February, but judging by recent trends and past history, it is pretty safe to assume that Nexstar should see a jump in revenue in 2024 from the election.
The consensus view among analysts that cover the stock is that it’s a buy, and it has a median 12-month price target of $201 per share. That would be about a 27% increase over the current $158 per share price.
Also, the stock is cheap in relation to its projected earnings potential, as it has a forward price-to-earnings (P/E) ratio of just over six.
While it has great short-term upside for 2024, Nexstar has been a solid long-term performer, averaging an 11% return over the past 10 years. And a recent agreement between cable TV operator Charter Communications and Disney that allows Charter to offer Disney streaming content on its cable platform, along with its networks, provides more long-term stability for its properties on these platforms.
Investors looking for a good election year buy may find it with Nexstar Media Group.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
