Media World: Newspaper stocks are enjoying a rare rally
Gannett Co., (GCI) the largest newspaper publisher in the U.S., today forecast that third quarter earnings would be 39 cents to 42 cents per share, excluding one-time items such as facility consolidations and employee layoffs. Those charges equal about 11 cents to 14 cents per share. Analysts had been predicting results of 28 cents, according to Thomson Reuters.
Shares of the company, which publishes USA Today and 83 other daily newspapers and operates 23 television stations, soared 18 percent.
"Although overall advertising revenue comparisons remain difficult, our third quarter year-over-year publishing comparisons improved again versus first and second quarter comparisons," said Gracia Matore, Chief Financial Officer, in a press release.
A lack of Olympics and political advertising dragged down the company's broadcast business, which also faced a tripling of retransmission fees. CareerBuilder and the Gannett's Digital segment also declined, consistent with their performance in earlier quarters. The company has closed some newspapers and fired staff as it fights to retain its share of advertising spending, which continues to migrate online.
Nonetheless, Wall Street analysts remain divided. The price targets range from $3 to $22. Of the 10 analysts who follow the stock, five rate it either as a strong buy or a buy. An equal number rates it as a hold or underperform. None considers it a sell. It's good to remember, though, that newspapers are one of the sectors Wall Street banks have cut coverage of to reduce costs.
It's hard to build a good case for investing in newspapers. Print advertising expenditures have not showed any positive gains on a quarterly basis since 2005, according to the Newspaper Association of America (NAA). And print sales still dwarf online sales; in the second quarter, online sales were roughly $653.10 million, compared with $6.1 billion in print. In December, Fitch predicted that the industry's overall growth rate would be "negative for the foreseeable future."
But newspaper stocks have been beaten down for so long that some investors are rooting for them to defy the odds and come out on top. The enthusiasm for newspapers seems contagious.
McClatchy Co. (MNI) has flirted with with financial disaster for years. Though ratings agencies have repeatedly praised the Sacramento-based company efforts to reduce its debt, it has been dodging bankruptcy rumors for a while. Fitch noted in July that McClatchy had an "untenable capital structure." For now, investors have set these concerns aside. Shares of the owner of the Sacramento Bee and Miami Herald is up more than 231 percent since the start of the year. They soared eight percent today.
New York Times Co. (NYT) is up 67 percent over the past six months as investors bet that the struggling publisher would find a buyer for its struggling Boston Globe properties. Shares are up 16 percent over the past year, even with the recent news that one of the Times' largest shareholders, the hedge fund Harbinger Capital, was reducing its stake. The stock was up almost six percent today.
Shares of the Washington Post Co. (WPO) are up as well. The company is the owner of the Kaplan education business, which helps bolster the shares. They have risen 20 percent over the past year. Warren Buffett has been among the company's biggest shareholders for years.
Eventually, investors in these stocks will make up and smell the coffee. By then, newspaper shares will have likely cratered once again.