Wachovia Analyst Cuts Rating on Newspapers — Predicts Bigger Ad Decline

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Predicting a steeper decline in advertising revenue over the next two years, a Wachovia analyst cut his rating on the newspaper sector Friday, and forecast smaller profits for five publishers.

Analyst John Janedis expects total ad revenue to fall 10.4 percent in 2008 and 6.5 percent next year, which will hurt profits and revenue for McClatchy Co., GateHouse Media Inc., Gannett Co., Lee Enterprises Inc. and The New York Times Co. He reduced his rating on the sector to “Underweight” from “Market Weight.”

Previously, he expected a 9.2-percent decline this year, and a smaller 3.6 percent slide in 2009.

Janedis downgraded McClatchy shares to “Underperform” from “Market Perform,” and Gatehouse to “Market Perform” from “Outperform.” He forecast more weak results in California and Florida, which provide about one-third of McClatchy’s ad revenue, along with continued weakness in Texas and the Carolinas. He thinks GateHouse will feel pressure due to reduced spending in the key Boston market, among others.

The analyst lowered his price ranges for shares of McClatchy, GateHouse, Lee and Gannett. He added that Dow Jones & Co., a unit of NewsCorp., will probably sell its Ottaway media unit for a relatively low price, which could also pressure publishing stocks.

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