By: Jennifer Saba
Monday’s pummeling of newspaper stocks — thanks to the Dow Jones/Murdoch saga — did not go unnoticed by Bear Stearns.
The research division upgraded its rating on Gannett from “peer perform” to “outperform.”
Bear Stearns analyst Alexia Quadrani wrote that Gannett is being unfairly punished and that it’s trading at a discount way too low at 7.5 times 2008 EBITDA estimates. “We believe this discount is unwarranted given its relatively better performing newspaper advertising trends and its exposure to broadcasting in front of a record political year,” she wrote.
Gannett gets the nod mainly because of its mixed holdings of broadcast and newspapers properties. The broadcast division, made up of major network affiliates in political hotspots, is expected to shoulder the company as political dollars — some $2 billion overall — pour in. Bear Stearns estimates the broadcast division represents 11.9% of 2008 revenues but contributes 21.1% to EBITDA.
Even its newspaper division, Quadrani concedes, is better off that its peers. Year-to-date ad revenue is down 5.3% compared with the Bear Stearns newspaper group average, which declined 7.8%. July is supposed to be rocky but results are anticipated to ease in the fall.
“Gannett’s current valuation is compelling in our view, especially given its better growth story in a challenged sector, in addition to its well regarded management team and solid balance sheet,” Quadrani wrote. “We think the stock will outperform its peers over the next six months as investors begin looking into 2008.”
As of late morning, Gannett was trading up 3.4% to $49.80.