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International media giant Gannett (GCI) reported stronger than expected earnings for the second quarter Monday. The firm earned $0.56 per share--higher than the $0.53 per share consensus expected--on $1.3 billion in revenue, which was down 2% year-over-year. Although the company is best known for its large portfolio of newspapers, including USA Today, The Arizona Republic and Detroit Free Press, Gannett also owns several TV broadcast affiliates, Captivate Network, Cars.com and 50% of CareerBuilder. We think the media conglomerate is trading at the lower end of its fair value range (click here for our valuation reports).

Broadcasting revenues continue to be a bright spot in Gannett's business mix. Not long ago, many thought the TV business would be destroyed by the Internet, but TV remains a resilient media avenue. Broadcast revenues, which are overwhelmingly driven by advertising demand, grew 11.4% year-over-year. The firm specifically cited political and auto advertisements as the key growth drivers. This represents yet another data point that the auto recovery is in full swing in the US. Third-quarter advertising revenues will be particularly strong due to political advertising demand and the Olympics (Gannett owns NBC affiliates). This segment alone generated over $100 million in operating cash flow in the second quarter.

Although the firm's publishing segment is in a secular decline, digital revenues in this segment increased 29% during the quarter compared to the same period a year ago. Most of Gannett's publishing properties have moved to walled-off business models, meaning IP addresses are limited to 5 or 10 articles per month without a subscription. Digital subscriptions have accelerated faster in the US, with US Today growing 37% versus 10% growth at Newsquest (UK). USA Today also saw mobile traffic increase 154% year-over-year in June. However, this new business model has not been able to compensate for lost advertising revenue, which fell 8.1% in the quarter. We think advertising revenues will continue to decline over the long term, especially as tablets become more popular.

Revenues in Gannett's digital-media segment grew 4.5% in the quarter, to $181 million, thanks mostly to strong growth at CareerBuilder. We aren't huge fans of CareerBuilder due to competition from LinkedIn (LNKD) and Facebook (FB), though we think the segment will continue to perform well as long as the US economy remains challenged. Career websites are benefiting from the added tailwind of a more nomadic American worker that no longer displays as much loyalty to employers.

Gannett looks rather cheap compared to its peers, trading at only about 7x forward earnings versus a 12 multiple for its peer group. The firm also trades at the low end of our fair value range, and it yields nearly 5.5% at current levels. We'll keep a close eye on the company, and we may consider it for our Best Ideas Portfolio if its Valuentum Buying Index score, our stock-selection methodology, improves.

Source: Gannett's Second Quarter Underscores Successful Transformation

Additional disclosure: LNKD is included in the portfolio of our Best Ideas Newsletter.