DB Raises 'Washington Post' To Buy

By: Jennifer Saba Deutsche Bank upgraded its rating on The Washington Post Co. from "hold" to "buy" citing the company is not getting enough credit for its education division.

"We think the Washington Post Co. is now a solid counter-cyclical play against an economic slowdown and potential employment malaise," wrote DB analyst Paul Ginocchio, noting that about 30% of the company's EBITDA exposure is to its education business.

Education stocks are on the upswing while the Washington Post has shown tepid growth. According to the note, year-to-date, education stocks tracked by DB are up 60% while the Washington Post is up only 7.5%. "We think the Washington Post continues to trade like a local media name, even though it's really now an education company."

The company is also poised to see good results from its cable division and broadcast division -- thanks to political advertising and stations in the battleground states of Florida and Michigan.

Even its flagship newspaper is showing better results than other metro dailies across the country, DB maintains. "Washington Post newspaper trends will likely remain weak, but with no Florida/California exposure and dramatically easing comps, we think they should be meaningfully better than the industry average, with profit trends helped by the significant declines in newsprint prices."

DB raised its price target 23% from $740 to $910 to reflect the increase valuation of pure-play education companies and its increased estimates. For Q3, the research firm lowered its earnings per share estimate by 2% but increased its Q4 EPS and 2008 EPS forecast by 10% and 11% respectively.

Risks to the upgrade include no margin expansion at the education division and lower political ad spend at its TV stations.

DB rated Lee Enterprises and Tribune as "buys."

As of noon, the Washington Post was trading up 2.29% to $819.87.