In the wake of the TV group’s $56 million buy of WTAJ Johnstown-Altoona, Bear, Stearns downgrades stock, saying the company should sell some stations to pay down excessive debt.
Victor Miller doesn’t like idea that Nexstar is buying stations instead of selling them.
This morning, the day after Nexstar announced the acquisition of WTAJ Johnstown-Altoona, Pa., (CBS, DMA 98), Miller and his team of financial analysts at Bear, Stearns downgraded Nexstar from outperform to underperform, saying the company is “sending the wrong signalÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â by not making good on promises to sell some stations and reduce debt.
With Nexstar leverage expected to hit 7.7-times at the end of this year and more than nine-times at the end of 2007, the Bear, Stearns report said the company’s “equity base is razor thin.ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â
Any investor in Nexstar is taking “inordinate balance sheet risk,ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â the report said, given anticipated economic slowdown in 2007, the sluggish network upfront and broadcasting’s heavy dependency on two other industries, auto and retail.
The report cited several instances in the past three years in which Nexstar CEO Perry Sook has promised to sell stations to improve the balance sheet.
“The question has to be asked: Where are the buyers? Has there been no interest in the [Nexstar]-sized markets at attractive sales multiples? Why have there been no asset sales in nearly three years since the IPO despite nearly three years of effort to sell something.ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â
Bear, Stearns said the $56 million price tag on WTAJ represents a blended 2005-2006 EBITDA multiple of 8.9, if $600,000 in cost savings are factored in. “The transaction is below Nexstar’s current 9.1-times trading multiple,ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â it said.