You Can Buy This Company for Less Than Its CEO Paid!

Shobha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

When J.C. Penney (NYSE: JCP) changed its strategy and decided to become an everyday low price retailer, it changed its marketing strategy from direct mailing to broadcasting.  As one of T. Rowe Price’s ads mentions how the oil industry in the North Sea affects the fishing industry in Japan, J.C. Penney’s change of heart had a negative impact on Harte Hanks (NYSE: HHS).  Macroeconomic headwinds and slowdowns in California’s and Florida’s real estate didn’t help the company either.  As Harte Hanks’ revenue plummeted this year, its stock price has fallen 42% since its second quarter release.

Strengths, Weakness, Opportunities and Threats

According to its management, one of its key strengths is its relationships with customers. When there are macroeconomic headwinds, companies will cut down their marketing expenses. However, as economy turns around, companies will go back to Harte Hanks. It has great relationships with companies like Microsoft, Toshiba.

Strengths: Harte Hanks is geographically diverse, so it can help its global customers’ marketing needs in multiple continents. It has a diversified customer base and diversified solutions for their marketing needs.  However, it doesn’t seem to have capabilities to create TV ads. So when J.C. Penney decided to broadcast its ads, Harte Hanks couldn’t help its longtime customer.

Weaknesses: When companies face challenging situations, they implement cost cutting measures. The marketing budget is one of the first one to get cut. So, when there is a slowdown in the macro-economic environment, that will most likely cause Harte Hanks’ revenue to decline. The company’s shoppers segment is very prone to California and Florida real estate and as those states’ economies are struggling, its revenue from that segment has declined.

Opportunities: Social Media and email marketing seems to be an opportunity for marketing companies like Harte Hanks. The company seems to evolve. It started as a newspaper publisher in 1923, however, through a series of acquisitions it has evolved as a digital marketing player for this technology era.

Threats: As everyone is clicking their smartphones continuously email and other forms of digital advertisements have grown to catch these consumers’ attention. This has attracted a lot of players into digital marketing and increased competition.  While technology players like Yahoo and Google focus on digital advertisement, ValueClick (NASDAQ: VCLK) provides a service similar to Google’s Ad Sense along with other forms of digital marketing services including email, marketing, and also direct mail.

What is Happening Now?

Harte Hanks is not expecting its shoppers segment to turnaround, so it has written off goodwill and ended up in the red last quarter.  However, it still has a large goodwill figure on its balance sheet. As its customers are cutting their marketing expenses in an effort to reduce its cost structure, it is undergoing restructuring.

In the last decade the company has repurchased shares consistently. Since 1997 it has repurchased approximately 65M shares. This August, it has announced that it intends to repurchase up to $10 million of its common stock. During the summer many insiders, including its CEO, have purchased shares at more than 24% above its current price. A CEO buying shares is not a guarantee of future price appreciation; however, it shows that the person who is running the company has confidence in it.

 


bnshobha has  positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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