By: Jennifer Saba
Look not to advertising revenue, earnings per share, or newsprint to goose stock prices for the newspaper sector this year. Instead, the performance of the industry hangs on the outcome of the potential sale of Knight Ridder, according to a report issued today by Goldman Sachs.
Analyst Peter Appert wrote that strong bidding for the San Jose, Calif.-based company — think at least $70 a share — would lift the entire tide. “Aggressive bids from financial sponsors would clearly serve as an upside catalyst for the group as investors anticipate the potential for further industry consolidation.”
On the flip side: Bids that come in around (or below) Knight Ridder’s current share price would “be a big disappointment.” As of this morning, Knight Ridder was trading at $63.90.
Knight Ridder retained Goldman Sachs as an advisor for a potential sale. Appert’s division is separate.
The note said that in light of stock performance, it’s best to go on the fundamentals like growing ad lineage and margins. Based on that viewpoint, the research firm is wary of endorsing the sector.
“Our cautionary fundamental view is reinforced by the continued downward trend in earnings estimate revisions, which we believe has been a key driver of the group’s underperformance from a stock standpoint over the past year,” the report said.