A Publishing Company with Strong Potential

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

Gannett (NYSE: GCI) recently announced a big move that attracted a lot of investor attention. This move will broaden the company’s diversification and improve its revenue potential. But that doesn’t necessarily mean it’s the best option in the publishing space.

Gannett’s acquisition

Gannett investors have enjoyed large gains over the past several years, yet the short position on the stock has remained high -- currently 9.50%. The most likely reason for this elevated short position is the expected decline of the publishing industry due to free content being available online. For bears, it was only a matter of time before the stock began a precipitous decline due to a dying industry.

However, Gannet is a well-managed company that has been around for over 100 years; it wasn’t going to sit back and allow for a slow death. This is a company that has seen many challenges throughout its history, including The Great Depression, World War II, and The Financial Crisis of 2008/2009. After dealing with such trying events, it unlikely an industry decline would be the final nail in its coffin.

Instead, Gannet announced that it would acquire Belo (NYSE: BLC), the owner of 20 television stations. The deal is expected to close at the end of the year. In most acquisition stories, the acquiring stock drops (due to costs) and the stock being acquired jumps. That’s not what happened here as the chart below shows:

GCI data by YCharts

In the first quarter, Gannett’s ad revenue declined 4.5%, mostly because advertisers throughout publishing industry have been hesitant to make any large commitments due to economic uncertainty. Rather than hoping for the economy and industry to improve, Gannett purchased Belo, and it now has a much larger presence in broadcast media -- 43 television stations opposed to 23.

Broadcast media is a growing industry with high margins, which is what makes this move look so strategic for Gannett. After just one year, Gannett expects the acquisition to add $0.50 to its annual earnings. 

Few thought a deal like this could take place,  but recent insider buying for Gannett could have been a clue.  Now this information didn’t predict an acquisition, but consistent insider buying almost always leads to stock price appreciation over the short term. But that's hindsight; let's look ahead. 

Gannett vs.

The New York Times (NYSE: NYT) might be a more recognizable name than Gannett for most people, but it’s not a bigger company. Currently, Gannet has a market cap of $5.64 billion, and The New York Times has a market cap of $1.61 billion.

Gannett is best known for USA Today, but it also has 82 daily publications, it owns 23 television stations (soon to be 43), and several online properties including PointRoll.com (digital advertising services), ShopLocal (multichannel and advertising services), and Reviewed.com (product reviews).

The New York Times is best known for its New York Times publication, but it also publishes the Boston Globe, the International Herald Tribune, and the Worcester Telegram & Gazette. Its online properties include Boston.com, BostonGlobe.com, and Telegram.com.

The chart below shows several key fundamentals for these 2 companies:

 

Forward P/E

Profit Margin

Debt-To-Equity Ratio

Dividend Yield

Gannett

9.80

8.57%

0.56

3.30%

The New York Times

27.02

4.76%

1.08

None

Gannett offers better efficiency, debt management, and valuation than The New York Times. Its 3.30% dividend is a big bonus.

Conclusion

Gannett had been dealing with inconsistent revenue and earnings on an annual basis, so it decided to make a move. By acquiring Belo, Gannet now shifts its focus from traditional publishing to broadcasting. Increasing involvement in a strengthening industry is often a good move.  Gannett looks to be a good long-term investment.

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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