Goldman, Sachs Initiates GateHouse Coverage With ‘Buy’ Rating

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By: Mark Fitzgerald

Goldman, Sachs & Co. initiated coverage of community newspaper publisher GateHouse Media with a “Buy” rating, and a note to investors that sees a “20% potential upside” to the stock over the next 12 months.

Analyst Peter Appert wrote that Goldman, Sachs likes the stock for its financial model, its focus on community papers, strong management, and high dividends, which it suggests could grow substantially in the next year.

“We think the current $1.28 dividend can grow to $1.54 over the next 18 months,” Appert wrote. The analyst said that assuming GateHouse offers a 6.5% yield — which is three times the average for similar newspaper groups — the target stock price implied is $25.

GateHouse went public in late October with an initial price offering of $18 per share that jumped 17.5% to 21.16 in the first day. Monday at 1:12 EST it was trading at $20.40, off a little from its high during the day of $21.00.

Goldman, Sachs said GateHouse has “the right financial model for the newspaper industry,” with its focus on free cash flow with a plan to pay out 80% of free cash flow to drive growth in dividend payments.

The company said while GateHouse is subjected to the same “secular pressures” faced by any newspaper publisher, “a focus on small, community papers provides a somewhat more benign operating backdrop.”

The “strong cost discipline and a proven management team” at GateHouse should drive “impressive” growth in margins on a near-term basis, Goldman, Sachs said.

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