Banc of America Analyst Begins Coverage of Six Newspaper Publishers at “Neutral”

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A Banc of America Securities analyst on Monday began coverage on six newspaper publishers with “Neutral” ratings, citing declining industry advertising revenues but saying the stocks are underpriced for the longer-term.

“We project the industry ad revenue decline to continue through 2008, given the slump in real estate and fallout on broader economic activity,” wrote analyst Joe Arns, in a client note.

But the analyst said the fall in advertising revenue — which newspapers have been battling as the Internet gained popularity — is cyclical. Meanwhile, initiatives to charge for online newspaper content are paying off better than some might expect, wrote Arns.

“We believe the longer-term prospects for the newspaper industry are better than what is implied by current share prices,” the analyst wrote.

Arns initiated coverage on New York Times Co., EW Scripps Co., McClatchy Co., Gannett Co., Lee Enterprises Inc. and GateHouse Media Inc. at “Neutral.”

The analyst gave New York Times a $21 target price and Gannett a $51.50 target price, citing uncertainty about how the companies will use the robust amount of cash they are generating.

Arns put a $26 target price on shares of McClatchy. While near-term pressures are weighing on the company’s performance, the analyst thinks it’s positioned well for longer-term recovery.

The analyst placed a $43 target price on EW Scripps shares, saying the company’s cable network assets should continue to drive growth ahead. However, he said he is concerned about the company’s interactive divisions.

Arns pegged Lee Enterprises, a daily and weekly newspaper publisher, with $19.50 target price. The analyst said the stock has good longer-term prospects.

He assigned a price target of $12.50 on GateHouse Media. Arns said the community newspaper publisher might have a dividend cut planned.

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