By: Jennifer Saba
Steven Barlow with Prudential Equity Research is the latest analyst to weigh in on what is shaping up to be a gloomy 3Q for the newspaper industry.
Based on August results, it’s easy to see why everyone is so glum. Advertising revenue in Prudential’s coverage universe was down 1.5%. The biggest loser? That would be the national category, which declined 9.7%. Classified continues to lose its sizzle: The category was down 2.5%. Within classified, auto dropped 9.6% and help wanted declined 7.6%. Real estate made gains, up 8.6%. The local category saved the day — sort of. It was up 0.3%.
Only online advertising showed any real progress (though it still represents a small portion of total revenue) by growing 30%.
Three companies listed in Prudential’s report piqued E&P’s interest: Tribune, The New York Times Co., and McClatchy.
Given all the drama surrounding Tribune since it announced in September it was exploring options to increase shareholder value, Prudential is gung-ho on the stock. “We remain bullish on Tribune’s prospects on a fundamental and ‘event’ basis, and we have a $40 price target.”
Analysts think it’s unlikely that the entire company is up for grabs. Rather, they are placing dibs on the chance Tribune will prune its portfolio by selling some assets and making good on its promise to cut $200 million in costs.
Over at McClatchy, the report mentions that it’s too early to get a read on the company’s performance since acquiring Knight Ridder. Prudential does think it’s a tad odd that earnings per share forecasts are all over the map from $0.43 to $0.55, something that is “unusual” for McClatchy which has not reported a range.
“We think part of the discrepancy is due to share count and differences of opinion on how the new assets are performing, as Knight Ridder newspapers have a history of underperforming the industry,” wrote analysts.
Prudential raised its rating on McClatchy earlier in 3Q to “neutral” and analysts are sticking with the decision. They felt that the market was punishing McClatchy shares “from its pre-Knight Ridder deal price of about $53.”
While the industry has gotten bruised so far this quarter, The New York Times is taking it in the shins, according to Prudential. July and August were cruel months, with advertising revenue down 5.3% and 5.9% respectively.
The New England Media Group “continues to drag down” the company’s results due to a slow down in help wanted and the consolidation of department stores.
A “turnaround” in New England would make Prudential take a second look at the stock (rated “underweight”). “However at this point, we believe the New England Media Group will continue to face challenges in September, and we would not be buyers of the stock at these levels.”