Is it Possible That Newspaper Companies Are Making a Comeback?

By: E&P Staff

Ian Wyatt | SmallCapInvestor Daily

Is it possible that newspaper companies are making a comeback?

I began to ponder this question after a few traditional media companies reported solid results in the third quarter. As the owner of a publishing company I find the story of traditional print media outlets somewhat fascinating. The recession has been especially tough on many companies in this sector, hit by the double whammy of advertising dollars drying up and people relying less on papers in lieu of online media.

So I consider the company E.W. Scripps (NYSE: SSP) to be quite interesting. E.W. Scripps is an old-line newspaper company that has actually become a media pioneer as the times have changed.

With many stocks looking a tad stretched entering the final months of 2010 I view a company like Scripps as a hidden profit opportunity. That’s because a lot of the easy money in stocks has already been made, so we need to look to stocks that haven’t been overbought.

***Scripps was founded in 1878 and grew into one of the largest U.S. newspaper chains. Cable TV delivered Scripps an opportunity to become a service provider because the company could wire homes and depend less on the peaks and valleys of advertising dollars.

It turned a healthy profit in 1995 by selling cable properties serving 800,000 subscribers to Comcast (Nasdaq: CMCSA) for $1.6 billion in stock.

Scripps’ next transformation was to become a provider of cable programming, starting with HGTV. It then built on its success to create six popular lifestyle channels, including the Food Network. It also acquired the Travel Channel and GAC (Great American Country).

Scripps essentially turned itself into a small cap when it decided to spin off its cable networks by creating Scripps Networks Interactive (NYSE: SNI). This company went public in 2008, and is now a behemoth with a market cap of $8.5 billion – far out of our small cap focus.

***To keep shareholders happy, newspaper companies like Scripps have slashed costs by downsizing staff and cutting back on newsprint use. Those cuts helped keep profit margins up during the downturn.

But while Scripps has lost money the past three calendar years, the company just posted its third profitable quarter out of the last four, earning 10 cents per diluted share compared with a loss of 6 cents per diluted share a year ago. Newspaper advertising revenues fell 7.1 percent from the prior-year quarter, but TV revenues shot up 31 percent year over year.

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