Goldman Downgrades GateHouse

By: Jennifer Saba Goldman Sachs downgraded GateHouse Media from "buy" to "neutral" after the company reported lackluster Q3 results on Tuesday.

Goldman believed that GateHouse was somewhat protected from the downturn affecting larger metro papers due to its local focus in smaller markets.

"Our thesis," lead analyst Peter Appert wrote in a note to investors, "has proven only partially correct."

Goldman called GateHouse's Q3 performance "anemic" noting that same-store ad revenue was down 3.3% (with classifieds down 8.4%). "Ad revenue trends suggest that the company is increasingly feeling the pressures that have weighted broadly on the newspaper industry in recent years," he wrote.

GateHouse continues to declare healthy dividends, though Goldman notes that too could be under pressure.

"Our conclusion is that $1.60 dividend could be at risk if underlying ad revenue growth deteriorates to the -5% range or less," Appert wrote. "We note however, that even under an assumption of -10% ad revenue growth, the implied dividend at [a] 93% payout ratio still supports a nearly 10% yield on shares at the current price."

Goldman's new price target for GateHouse is $10.

As of mid-morning, GateHouse is trading down $1.74 to $10.28.