By: Mark Fitzgerald
Between the Fannie Mae and Freddie Mac meltdowns, the collapse of airline industry market caps, the cratering of the financial sector, and arrival of $145-a-barrel oil, last week in the stock market was no fun for anybody.
Lost in the general media headlines, however, was the beat-down of publicly traded newspaper companies, a sickening dive of share price in the double-digits — for some, in a single trading session. Don’t blame the media. Newspaper stocks swooning is old news.
But the sector’s stock woes may get another 15 minutes of fame over the next two weeks as investors and analysts get a look at second quarter results. Bet your house: It’s not going to be a pretty picture.
First, let’s look at where the industry is.
By the definition of slipping 20% from the peak of the Dow Jones Industrial Average, Wall Street officially became a bear market last week. But given the far deeper plunge in newspaper stocks, what should they call the nightmare market they find themselves in?
Right below is where the stock of selected newspaper companies ended last week. And these results are calculated against their 52-week highs — because it would be just too depressing to compare last week’s results to the prices newspaper companies fetched when The Street loved their huge cash flows, and going-to-market strategies of being the monopoly information source of insulated smaller towns, like Lee; or of concentrating on growth markets, like McClatchy; or funding big dividends like GateHouse; or just being disciplined yet appropriately acquisitive like Gannett.
The roll call of collapse:
–GateHouse Media Inc.: Down 91.7%.
–Lee Enterprises Inc.: Down 84.1%.
–The McClatchy Co.: Down 82.3%.
–Media General Inc.: Down 68.7%.
–Gannett Co. Inc.: Down 68%.
–Journal Communications Inc.: Down 65.4%.
–New York Times Co.: Down 43.9%.
Even The Washington Post Co. — a more-or-less Wall Street favorite because it has diversified into the strong educational material sector and pointedly no longer refers to itself as just a “newspaper company” — ended trading last Friday down 34.3% from its 52-week high.
For cheerleaders for the newspaper industry, there were times during the carnage you had to laugh lest you burst into tears.
After 4 p.m. EDT trading ended Friday, for instance, I was idly scrolling the list of the biggest percentage losers of the day. Among the biggest losers, a list headed by the 22.35% drop in Fannie Mae, was the department store chain — and newspaper advertiser — Dillard’s, the 14th percentage decliner with a 14.53% fall.
I was meditating on that doleful fact, and scrolled farther down, realizing at some point that I had skipped through stocks off 12%, and hadn’t seen GateHouse, which lost 12.7% of its value Friday — the sixth consecutive trading session in which it hit an all-time low.
Then I saw the fine print on this particular list: A stock had to list for at least $2 a share to be considered. GateHouse — which leaped to $22 a share on the first day it went public in October 2006 — sank below $2 last week, ending at $1.58 Friday.
That’s kind of how it’s going with the newspaper industry. So far, the NYSE has kicked Journal Register Co. and Sun-Times Media Group off the Big Board because they fell below the requirement to cost at least $1 a share. with market capitalization of at least $75 million. On Friday you could buy a share of either company for less than a copy of their flagship papers. Sun-Times, which fell 10.42%, ended Friday at 43 cents a share. Journal Register shares cost just 15 cents. The publisher of the New Haven Register, the Daily Tribune in Royal Oaks, Mich., and 20 other daily newspapers has a market cap of less than $6 million.
Going into Monday’s trading, GateHouse’s market cap, at $91 million, was not much higher than the NYSE’s minimum requirement.
It’s tempting to think things can’t get worse for newspaper stocks.
But consider what Goldman Sachs said last week about E.W. Scripps, which at the beginning of the month spun off its more profitable lifestyle cable networks and online ventures into a separate publicly traded company. Predictably, its stock sank like a rock on the first day of trading on volume 10 times normal.
Yet Goldman Sachs issued a “neutral” recommendation on the stock, saying that, at a value of 3.8 times EBITDA (earnings before interest, taxes, depreciation, and amortization), the newspaper industry’s woes were already priced in to the stock.
The implication was that there was plenty of “downside potential,” as they say, for the rest of newspaper stocks, which are priced, Goldman Sachs estimates, at an average of 5.5 times EBITDA. (Want more doleful implications? As recently as 2006, the industry average by most estimates was 10.5 times.)
Some big newspaper stakeholders haven’t waited to bail big time. Last week, for instance, FMR LLC disclosed that it now holds just 431,000 shares of Lee Enterprises, or about 1.9% of shares outstanding. FMR had been the second-biggest institutional holder of Lee, with more than 5 million shares of Lee Enterprises, a 13.12 stake.
This week, anemic second quarter earnings reports are sure to give disenchanted investors even more reasons to dump newspaper stocks.
The 2Q season kicks off Wednesday when Gannett reports its earnings. Next up is Media General on Thursday, followed by Journal Communications July 22; New York Times, July 23; and Lee and McClatchy July 24.
There will be blood.