By: Mark Fitzgerald
Gannett Co. Inc. has an enviably low debt burden and online businesses growing at a healthy rate, yet even it cannot escape Wall Street’s current aversion to newspaper stocks.
The latest evidence comes from Morningstar Inc., the Chicago-based investment research firm. In its latest note from stock analyst Tom Corbett Morningstar lowered its “fair value estimate” of Gannett stock to $23 from $32 a share. It said investors should “consider buying” the stock at $17.30, and “consider selling” at $29.90.
In afternoon trading Tuesday, Gannett (NYSE: GCI) was at $22.59, off 18 cents, or 0.8%, from its opening. It has traded in a 52-week range of $22.18 to $55.80.
“Gannett may be the nation’s largest newspaper publisher in terms of sales, but size won’t protect it from the turbulence of a declining industry,” Corbett wrote.
Morningstar is placing Gannett under review while it assesses the company’s May and year-to-date revenue figures.
“We have lowered the sales and operating margin forecasts in our discounted cash-flow model after the company released disappointing April and May revenue figures that demonstrated an acceleration in the deterioration of its print ad revenue business,” Corbett wrote. “Our previous forecast was not pessimistic enough.”
Morningstar now estimates Gannett annual sales will decline by an average of 4% annually during the next five years, down from an estimate of 3%. The firm figures sharper sales declines this year and in 2009, followed by a “gradual flattening out” after 2010.
Morningstar also lowered its estimate of Gannett’s future operating margins to about 20% annually for the next five years, down from a previous estimate of 24%. In 2007, Gannett posted an operating profit margin of 22%, down from 26% in 2005, Morningstar said.