Goldman Sachs Upgrades Dow Jones, Downgrades Journal Comm.

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By: Jennifer Saba

Goldman Sachs upgraded Dow Jones from “underperform” to “in-line” today. Also, the research firm downgraded Journal Communications from “in-line” to “underperform.”

Dow Jones has been showing promise lately, according to a note issued by Goldman Sachs. Recent management changes — investors like newly appointed CEO Rich Zannino — signs of improved ad lineage, and positive growth from electronic publishing are the reasons behind the bullish stance.

The Wall Street Journal’s Q4 ad lineage is expected to be up in the high single digits. And though it’s still early, the Weekend Journal is doing better than anticipated by delivering consumer advertising.

Also in 2006, the electronic publishing unit is expected to contribute over half of Dow Jones’ earnings and roughly 29% of revenues.

Meanwhile, Goldman Sachs took Journal Communications down a notch because of the company’s declining telecommunications division. Any growth in its publishing and broadcast units won’t likely offset declining telecom results.

Goldman Sachs anticipates that the telecom division will “take a sizeable step down” this year as the unit grows more dependent on enterprise customers. The note said it expects the net results for telecom to drop 5% in 2006 segment revenues and 40% in segment operating income. It’s forecasted that 2006 margins for the division will average 11% compared with an average 17.5% in 2005. “It is this swift decline that has us most concerned,” said the note.

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