Printing Money by Andrew Bary
Summary: Newspaper industry leader Gannett (GCI) publishes USA Today, a large group of newspapers in small to midsized U.S. cities, and regional newspapers in the UK. Known for firm management and cost controls, its 30% operating margins are the best in the business. Yet profits, forecasted this year at $4.71, have been stuck at about $4.90 for the past three years. Its stock trades for 12x 2007e profits, the lowest in the newspaper industry (Sam Zell is paying 17x for Tribune (TRB)). Its expected $5/share of free cash flow gives it a free-cash-flow yield of 9%, prompting Credit Suisse analyst Debra Schwartz (who has an Outperform rating and $65 target on the stock) to remark that what it does with its free cash will be a "significant potential catalyst" for share prices. Skeptics argue that its 'plump margins' are likely to fall as advertising dollars move to the internet, but Gannett's focus on local coverage may help insulate it from the woes of big-city players. Its $13.2 billion market cap and $5 billion in debt make it an unlikely buyout candidate, which leaves investors wondering what the company can do to boost shareholder value as its shares lag at 1998 prices of $56. Barron's suggests: 1) Increasing its $1.24 (2.2% yield) dividend (its cash flow would easily allow for a $3.50 (6%+ yield) dividend); in a recent conference call, CEO Gracia Martore showed little interest in a substantial boost. 2) Spinning off its TV operations, which includes some attractive NBC stations. Pure TV plays are attracting much more LBO attention than newspapers, and some TV stocks have doubled over the past 6 months.
Related Links: Why Print Journalism Will Never Really Die • Old Media Discovers the Value of Internet: Can Gannett Pull It Off? • Death of the Newspaper • Measuring Gannett, Google, and Yahoo By Their Eyeballs
Conference call transcript: Gannett Q4 2006 Earnings Call Transcript