Goldman Sachs: Newspaper Stocks Still ‘Value Traps’

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By: Jennifer Saba

The phones are ringing at Goldman Sachs — analyst Peter Appert explained in a research note released today that they are fielding an “increasing number of inquiries from investors on whether the newspaper stocks are values or value traps.”

Goldman’s advice: The group has a way to fall — a correction of 16% is necessary — before the stocks are considered a value. “In our view, valuation have not yet reached the level where investors are ‘paid to wait’ for a cyclical bounce in industry growth,” according to the note. Given the “ever-increasing fragmentation in the local media marketplace, we believe we are experiencing a permanent downward shift in valuation levels.”

As such, Goldman said the sector is still too expensive, there is no further industry consolidation in the near future to boost stocks, and operating fundamentals remain “sloppy.”

Goldman thinks that the Knight Ridder sale process (Goldman Sachs is advising Knight Ridder but Appert is in a separate division) shows there is limited buyer interest in the newspaper sector given the lack of bids by financial players and, to a lesser extent, strategic buyers.

On the consolidation front, even if there were hungry buyers in the market for newspapers, only two public companies, Gannett and Tribune, are not tightly controlled by familes, said the note.

Goldman could get more bullish on newspaper stocks if there was a spurt in revenue growth or improved earnings. “Unfortunately, neither of these events seems likely on a near-term basis.”

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