Prudential Downgrades McClatchy to ‘Underweight’

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By: E&P Staff

Prudential Financial analysts downgraded shares of The McClatchy Co. to “underweight” from neutral Thursday, one day after federal regulators cleared the company’s fire sale of the Minneapolis Star Tribune.

“We are downgrading McClatchy to Underweight from Neutral Weight owing to valuation and concerns about the ongoing pressure in generating revenue growth in the newspapers industry,” analyst Steve Barlow wrote in a note to investors. “MNI is 100% dependent on newspapers as its source of revenue. Advertising trends in
2006 were poor and we expect MNI to achieve only 2% pro forma … revenue growth in 2007.”

Prudential also reduced the target price to $37 from $40.

The target price is 8.0 times EBITDA (earnings before interest, taxes, deductions and amortization). Prudential noted that the Star Tribune went for 7 times 2006 EBITDA. “MNI’s California properties we think would fetch close to 10 times EBITDA in an auction, making us comfortable with a market multiple of 8.0 times,” Barlow wrote.

He said McClatchy management “is strong but we think they are holding tough cards right now.”

At 9:45 EST, McClatchy was trading at $39.87, down $1.27 or 3.09%, from its opening.

Wall Street has hammered McClatchy since its blockbuster buy of Knight Ridder Inc., first announced last spring. In the past 52 weeks McClatchy has traded as high as $59.16. It is now trading close to its 52-week low of $38.80.

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