Wells Fargo Downgrades Gannett Over Advertising, Circ, and ... Leno?

By: Jennifer Saba Citing a weak ad recovery, a decline in circulation and the impact of the Jay Leno show on local TV affiliates, Wells Fargo Securities downgraded shares of Gannett Co. this morning from "market perform" to "underperform."

Senior analysts John Janedis and Jaime Morris forecasted that newspaper advertising revenue at the McLean, Va.-company will fall 14% in 2010 noting they expect ad revenue to decline almost 30% this year.

While circulation volume across the country is on a steep decline, Wells Fargo is particularly focused on Gannett's circulation revenue. Analysts modeled a 4.4% drop in circ revenue in 2010. For the six months ending September 2009, Gannett's daily circulation (including USA Today) was off about 14%. Circulation revenue in Q3 fell 4.9% year-over-year.

Gannett's newspaper segment isn't the only thing worrisome to the Wells Fargo analysts. The company was knocked down a peg over concerns that broadcasting revenue will slow due mainly to the time slot of the Jay Leno show, which precedes news programming and has had weak ratings. In the note, Janedis and Morris explained Gannett's local NBC affiliates typically enjoy strong news ratings taking the No. 1 or No. 2 rankings in their respective markets. Wells lowered its broadcast segment revenue estimates from an increase of 10.8% to an increase in 8.3%.

Shares of Gannet (NYSE: GCI) have been experiencing a rally lately, up almost 225% since July. As of this morning GCI was trading up 53 cents to $10.90. Janedis and Morris warn: "We think current valuation implies a more robust recovery in the traditional media business than we anticipate. We expect shares to trade lower as estimates begin to reflect weaker fundamentals."


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