Is This Paper Boy Running Out of Routes to Run?

By Ryan Guenette - September 6, 2012 | Tickers: GCI, SSP, NYT, WPO | 0 Comments

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Gannett (NYSE: GCI) is an international media and marketing solutions company. The company delivers content and services across several integrated platforms. Gannett’s most widely recognized brands include USA Today and CareerBuilder. Gannett is highly sensitive to the consumer’s needs, and delivers its content through the internet, mobile phones, tablets, print publications, and television stations. The company is simply put a newspaper company with a wide portfolio of other products and services. Over the past five years the company’s stock has been hammered 69.75%, vastly underperforming the S&P 500, which only has declined 4.74% during this period. At the moment the company employs around 31,000, and is valued at $3.48 billion on the New York Stock Exchange. So is this paper boy running out of routes to run?

Withering Fundamentals

In 2002, Gannett Company reported earnings per share of $4.33. In 2012, the average analyst consensus believes the company will derive $2.10 per share from its business operations. This represents a 51.50% decrease in earnings over the course of a decade. Based on these statistics, the company’s compound annual growth rate (CAGR) is -6.98%, a deeply concerning rate. Unfortunately, Gannett’s deceleration in earnings is not a one year fluke; it is a consistent trend in the wrong direction. However, it is noteworthy to mention that stabilization in earnings is expected in the coming years, putting 2014’s earnings at $2.52. This downward sloping trend is likely to pull share prices lower, as the only thing that could carry shares higher is price to earnings ratio expansion. In addition, Gannett Company pays out a hefty dividend that is a major catalyst for the company. Currently, the company pays out an annual dividend of $0.80, which at current prices, puts the dividend as yielding 5.32%. This is drastically up from 2011’s annual dividend of $0.24, yet is anticipated to remain steady in the future. From this we can see Gannett’s underlying deteriorating earnings and massive dividend, which may become a major catalyst for the stock.

The chart below displays Gannett’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the foreseeable future.

Extra Extra Read All About It

Years ago, when there were no computers, smartphones, and tablets, the only channel one could obtain information about the world around them was through newspapers. Newspapers were essential parts of society, and provided the public with current and relevant information. They were the modern-day equivalent of the computer. Modern day newspapers are becoming irrelevant and useless. Computers can provide people with interactive information, that is millions of times more compelling and engaging. While many people still utilize papers, as they enjoy the hard copy of the information, the disturbing truth is that newspapers are inefficient and becoming more and more rare. Companies looking to promote their brands are not advertising on newspapers, as the digital advertisements are more interactive and captivating. The chart below displays the huge drop in newspaper advertising revenue, which will go against Gannett, as its main brand is USA Today.

Who Is the Reporter on the Beat?

Compared to some of Gannett’s most prominent competitors, such as: The E.W. Scripps Company (NYSE: SSP), The New York Times Company (NYSE: NYT), The Washington Post Company (NYSE: WPO), and News Corporation (NASDAQ: NWSA), Gannett compares relatively in-line.

In terms of growth, New York Times is the industry leader, while The Washington Post is the industry laggard. All companies except for Scripps and New York Times pay out dividend, with Gannett possessing the largest and fastest growing dividend. In the fundamental ratio comparison, New York Times appears to be trading at a huge premium, while Gannett is the industry bargain. When growth is taken into account, New York Times is once again trading at a premium, while Scripps is the industry bargain. In the net profit margin comparison, Gannett stands out to the upside, while Scripps stands out to the downside.

The Foolish Bottom Line

Newspapers are no longer the only way to obtain information in the modern world. Information on computers and other electronic devices is more interactive and engaging. Companies are not willing to allocate capital to advertising on newspapers, as it is ineffective. Gannett has withering fundamentals, yet possesses a major dividend. If the company is able to focus more on its electronic business it will succeed in the future. Compared to its peers, Gannett is in the middle of the road. While by no means is the company a great long-term buy, it may have a future as a company focused on electronic services.                     

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