Wednesday, August 29, 2012

Investors See Some Value in Newspaper Companies

Newspaper companies, of the type News Corp. might spin off, are trading at premiums to book value, suggesting investors still see value in the business.

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New York Times Co., McClatchy Co. and Gannett Co., three of the biggest newspaper companies, all trade at premiums to the value they would hold if they were liquidated.

Warren Buffett has scooped up several newspaper assets in recent months (including last week), though the famed investor�s bet has been mainly on local, dominant news sources.

Though print advertising revenues remain on a decline broadly, as advertisers follow consumers increasingly onto the Internet, some local newspapers that face less competition have held up and some big publishers have managed to improve returns with online changes.

News Corp. on Tuesday confirmed a Wall Street Journal report that it is considering a spinoff of its newspaper and publishing assets. Its newspaper assets include The Wall Street Journal, the Times of London and the Australian newspaper. Its publishing assets include HarperCollins book publishing. News Corp. owns Dow Jones & Co., publisher of the Journal.

Gannett, publisher of USA Today and the largest U.S. newspaper network by circulation, reaffirmed last week it expects revenue to rise 2% to 4% annually and earnings growth to expand by 2015. Though its print advertising revenue fell 8.4% in the first quarter, the company said the latter end of the quarter was improving.

As Heard on the Street colleague Miriam Gottfried wrote this week, Gannett�s margin of earnings before interest, taxes, depreciation and amortization for the newspaper division was 18.3% in 2011. That�s down from 29.6% in 2005 heydays but still not dead.

Gannett�s stock has risen 2% this year and is trading at 1.4 times its book value and 6.3 times its forward looking earnings, according to data-provider FactSet.

More In News Corp.
  • Rupert Murdoch's Memo to Employees as News Corp. Plans Split
  • Analysts React to News Corp. Split
  • News Corp. Split, the Viacom Way
  • News Corp Shares Highest Since 2007 Dow Jones Acquisition
  • News Corp. Split Looks Good to Shareholders

New York Times, meanwhile, likely a key rival to any News Corp spin-off, trades at a relatively high 1.9 times book value and 10 times its forward earnings, according to FactSet. That�s as shares have lost 13% this year.

That paper has seen circulation numbers soar over the past year as it has launched a pay-wall online. It has also obtained gains from the sale of some assets, including its stake in Fenway Sports Group, the owners of the Boston Red Sox, and 16 of its regional newspapers.

That helped drive its first-quarter profits up even as advertising revenue in print fell 7.2%.

McClatchy Co. trades at just above book value and 3.5 times its forward earnings, after seeing its stock drop 13% this year, according to FactSet. Its advertising revenue slid 6.8% in its first quarter, though showcasing some hope, its online ads rose 2.7%. The publisher of the Sacramento Bee and the Miami Herald also noted that the rate of decline in its advertising sales improved throughout the quarter.

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