Can these 4 companies make it through a double dip recession? We took a look at a few companies standing on very shaky ground. As always, use the list below as a starting for your own due diligence:
News Corporation (NWSA)
News Corporation is engaged in the business of diversified global media activities across the world, with operations in six business segments. NWSA turned into negative profitability during FY09 due to lower advertising revenues which was a result of general weakness in the advertising markets, but now the stock is striving hard to gain its lost position again.
The company has recently announced its annual results of FY11. The net earnings per share of the company stood at $1.04 or $2.74 billion. This increase was driven by improved contributions at all segments, led by 12% growth in market-leading Cable Network Programming and a 7% surge in Television segments. NWSA has outperformed the board S&P 500 index benchmark (SPY), as it has provided 24.68% in last 52-weeks compared to 4.84% increase in index. The media specialist company is sitting at comfortable cash position, with total cash amount of $12.68 billion compared to total outstanding debt of $15.50 billion. The company has enough liquidity in its hands to manage any short term liability. The target fair value of the NWSA is $20.56, offering healthy upside of 31.7% from its closing of August 19, 2011. The major risk for the company is the fear of double dip recession in the U.S. and European sovereign debt crisis, which could halt its growth and could decrease its profitability going forward.
Rite Aid Corporation (RAD)
Rite Aid Corporation is one of the fastest growing and nation's leading drugstore chains with strong presence on both the East and West coasts, 91K associates and approximately 4,700 stores in 31 states and the District of Columbia.
The meltdown of global economy has its catastrophic effects on most of the industries; it is unlikely RAD could survive an economic crisis. The company has faced tough economic and retail conditions throughout FY11, which has hampered its sale growth, EBITDA margin and caused sterner loss per share as compared to previous year’s performance. Very high debt burden is the key concern for the investors at this point, as the balance sheet of the company shows that it has over $6.0 billion dollars of debt on its books. The EBITDA of $745.72 shows that nation’s third largest drugstore chain would face certain problems to pay off its interest and principal amount in coming future, if it didn’t increase its sale volume and operating profit margin significantly. RAD has a market capitalization of $1.07 billion and enterprise value of $7.40 billion as of August 7th, 2011. The operating cash flow and levered free cash flow since its last reporting period stands at $261.62 million and $274.77 million respectively, showing major concern for company’s viability when compared to its debt burden. The last closing price of the stock as of August 19, 2011 is $1.0. It has traded in the range of $0.86 – $1.47 in last 52-weeks. A cautious stance is recommended to investors in this stock.
Gannett Co., Inc. (GCI)
Gannett is the provider of media and marketing solutions throughout the U.S. GCI has diverse portfolio of broadcast, digital, mobile and publishing companies. GCI has the readership of above 12 million people on weekly basis.
GCI stock has fundamentally weakened over the period of time, as the global crisis has compelled the companies to cut their marketing budgets and reduce their new product offerings. The media and marketing solution provider company has witnessed adverse quarterly growth of 22.50% in its earnings, depicting tremendous slowdown and concern for investors. GCI has five year revenue growth rate of negative 6.06%, and with present economic turmoil all over the world, the situation does not seem likely to improve. The share price has witnessed negative change of 28.43% since the start of this year, and 18.86% in last 52-weeks time, underperforming the broad market S&P 500 index which has posted positive growth of 6.99% in last year. The last closing price of the stock as of August 19, 2011 is $10.05. It has traded in the range of $10.40 – $18.93 in last 52-weeks. A "stay away" stance is recommended to value investors given the movement of advertising dollars online towards Google (GOOG), Yahoo! (YHOO) and InteractiveCorp (IACI), where GCI lacks a significant presence.
Barnes & Noble, Inc. (BKS)
Barnes & Noble, Inc. is a leader in specialty retail content, commerce, and is a technology provider through its multi-channel distribution platform in the United States of America. A cursory look at the balance sheet of the company tells altogether the different story. The company is suffering from liquidity constraints as reflected by its cash position of $59.3 million in its latest financial statements and current ratio of just over one. BKS is highly levered organization, and it has debt-to-equity ratio of 56.48. Such a high debt-to-equity will be viewed with serious concerns by the investor community as the company might not be able to meet its financial liabilities in coming future. The EBITDA of the company raised this concern further as it is standing at $166.2 million on revenue base of $7.0 billion. This shows that company is having a lofty fixed cost. Although company has won numerous awards recently,l it could not stimulate its sales growth. The company had reported only 4.1% revenue growth in the last quarter of 2011, and also suffered immense losses. The current U.S. economic condition and fear of double dip recession would further hammer the growth of BKS product offerings. This shows that BKS is extremely risky company to invest in considering relentless competition from Amazon (AMZN) and Netflix (NFLX)..