RH Donnelley: Praying for a Miracle

RH Donnelley (RHD) announced 2008 guidance and watched their stock get hammered from the get go. In the same press release they announced a $100 million dollar share buy back program. The stock is trading at the low end of its 52 week range. At the end of September they only had approximately $19 million in the bank. Earnings are disappointing, so if cash flow does not hold up they will be increasing their already high levels of indebtedness.

RHD's market cap is just a snick under $3 billion. They are carrying $10.2 billion of debt. Cash flow is squeaking and making all the wrong noises. The stock has dropped dramatically and most of the remaining trading is on the basis of tax loss selling.

The external board consists primarily of people in the direct marketing business or businesses closely allied to this business process. There does not seem to be a sufficient breath of outside experience. One has to wonder if they are not too close to the problem. In any event this cannot continue for much longer before the basics of financial arithmetic come into play.

There is much speculation of a takeover occurring, which may be a blessed event. However the days of mega premiums for troubled assets may be over. Cheap credit for troubled asset buyouts are definitely over. RHD is just rolling the dice and praying for some kind of "Beam Me Up Scotty" solution.