Newspaper Stocks Down in January

By: Jennifer Saba Newspaper stocks dropped 5% in January, when the S&P 500 decreased 2.5%, according to a report issued by Merrill Lynch today. No newspaper company was immune, as every stock covered by the investment firm experienced declines. Dow Jones was down the most at 11.5%, and Gannett was down the least at 2%.

Merrill Lynch maintains a "buy" rating for Tribune, E.W. Scripps, and The Washington Post Co.

In other news, the firm believes the outlook for Q1 is "choppy." Easter falls early this year, in March, and that's expected to "negatively impact Q1 results in favor of Q2."

Further mucking up the waters is the recent merger-and-acquisition activity. No, not the heated atmosphere around newspaper transactions, rather the M&A deals around major advertisers: Procter & Gamble and Gillette, SBC and AT&T, Cingular and AT&T Wireless, Sprint and Nextel, Federated and May, and Sears and Kmart.

"Legitimate concerns are being raised concerning the impact of these mergers on advertising spending," the report said. "At a minimum, the resulting entities are likely to take a tougher stance on media rate negotiations."

Not boding well for newspapers, Merrill Lynch's retail analysts found that department store Kohl's plans to continue to increase radio and television advertising for the year, rather than relying on newspapers. The report said that too many other retailers are imitating Kohl's newspaper ads, making it difficult to stand out in the medium. Plus newspapers' declining subscriber base does not fit with Kohl's goal of "reaching out to their target demographic of rapidly growing neighborhoods."