Washington Post Co. Downgraded by Merrill Lynch

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By: Jennifer Saba

Merrill Lynch downgraded The Washington Post Co. from “buy” to “neutral” after the company missed the research firm’s projected earnings per share target for two consecutive quarters. In Q2, it missed the mark by 13% and in Q1 it was off by 8%.

Merrill, which issued a note today on the Washington Post, projects earnings will decline 5% this year and increase 17% next year (fueled by political ad spending). Originally, the firm was banking on earnings to grow 8.5% for this year.

“While acknowledging that WPO does not manage for quarterly results, and that it has more quarter to quarter volatility than most companies, we still believe there could be some risk of further downside revisions,” the report said. “Compounding secular issues is a management team that is not driven to produce more industry like margins.”

The education sector, one of the company’s biggest growth stories, is slowing down. The firm notes “the results are now more closely following the pattern of their peers.” Merrill lowered it revenue growth for the division to 20% from 22.5%.

Newspaper advertising revenues dropped 2% in Q2 after showing some promise. From January through May ad revenues increased 2%. The Washington Post took a hit in the national ad category, an important segment for the paper compared to its peers. Online ad revenues advanced 21% in Q2. In Q1, the company reported an increase of 27%.

This morning, shares for the Washington Post were trading down 2.5% to $815.00 from the previous close of $835.59.

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