Press Confidence
Now here’s some news: Newspaper stocks are a hit again on Wall Street.
After years of disappointing investors with lackluster profits and sagging circulations, major publishers again have a story to tell: They’re producing strong earnings gains that are propelling their shares higher.
Standard & Poor’s index of major newspaper stocks has run up a sparkling total return of 22% for the past 12 months, surpassing the 17% return earned by the overall S&P; 500.
Moreover, the S&P; newspaper index is still up 9% for 1997, whereas the S&P; 500 is up only 3% because the market’s recent pullback erased most of its earlier gains this year.
And lest one think the stocks have gotten too pricey, Merrill Lynch & Co. analyst Lauren Fine said she’s still bullish on the industry in part because “the group’s valuation is still very attractive.”
Another reason: Newspaper publishers are continuing to post blockbuster quarterly profit reports. Last week, for instance, both industry giant Gannett Co. (ticker symbol: GCI) and New York Times Co. (NYT/A) announced earnings gains of more than 50% from a year earlier.
Gannett said its quarterly net income from continuing operations soared 55% from a year earlier to 96 cents a share--a nickel above what the Street had expected.
Powered by its national USA Today newspaper, Gannett said pretax operating income from its newspaper group soared 41% from a year earlier.
E.W. Scripps Co. (SSP), a Cincinnati-based operator of newspapers and television stations, likewise turned in first-quarter earnings that were well above analysts’ forecasts, and the next day its stock surged 10%. It currently trades at $38.125 a share.
It’s that kind of showing that has Scripps on the “buy” lists of several analysts, including Dennis McAlpine of the investment firm Josephthal Lyon & Ross in New York.
Investors are also expecting big first-quarter profit growth for Tribune Co. (TRB), Knight-Ridder Inc. (KRI) and Times Mirror Co. (TMC), publisher of the Los Angeles Times.
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What’s the scoop behind the rebound?
More advertising, lower newsprint costs and aggressive cost cutting by the papers themselves. That’s not only pumping up the publishers’ earnings, it’s also generating a stream of cash flow that many of the companies are using to buy back shares and reduce debt--all big attractions for investors.
Advertising--the financial lifeblood of a newspaper--is finally picking up smartly, both on the retail level and in the number of classified lines being sold. It’s a welcome rebound, because advertising sales had badly eroded for newspapers beginning with the early 1990s recession. The slump was exacerbated when many big department-store chains--which are heavy newspaper advertisers--reduced their numbers in a spree of mergers.
At the same time, the price of newsprint, which typically accounts for one-fifth of a newspaper’s operating costs, fell 6% last year and is expected to drop 15% more in 1997, according to Merrill Lynch’s forecast.
Fine also noted that several of the companies she follows have changed top management in the last two years (Times Mirror among them), and that the new executives are working harder than their predecessors to slash costs and lift revenues.
But there are ominous signs ahead. Analysts expect newsprint prices to start edging back up within the next year, and they see advertising gains beginning to plateau at the same time.
Given those forecasts and the stocks’ recent gains, are there any stocks still worth a look?
A few. Brian Oakes of Lehman Bros. has a “buy” only on New York Times, currently trading at $40.25 a share, because “it’s a play on the continued strong gains in national advertising,” he said.
Others like the companies that are more balanced, with holdings not only in newspapers but also in broadcasting and information services. That’s why Fine is touting Gannett (which publishes 91 newspapers but also runs 16 TV stations) and Tribune (publisher not only of the Chicago Tribune and three other papers, but also operator of 16 TV stations).
Both “are excellent examples” of diversified companies that are exploiting the improving newspaper market but that are not wholly dependent on it, she said.
Pulitzer Publishing (PTZ), meanwhile, gets a nod from analyst Michael Kupinski of A.G. Edwards & Sons Inc., located in Pulitzer’s hometown of St. Louis. Even though Pulitzer, currently trading at $46.50 a share, has been an industry laggard, Kupinski likes the company’s solid newspaper performance and says it “represents one of the best plays in the consolidating TV broadcasting industry.”
“The company is in a strong position to pursue additional acquisitions,” and it has a proven record of buying newspapers and broadcast stations “at attractive prices,” he said.
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Times Mirror, meanwhile, is benefiting nicely not only from the industry’s overall improvement but also from its own restructuring and cost-cutting efforts, and from the rebounding California economy.
Fine said Times Mirror’s performance “hopefully should keep improving with California’s recovery.” But the stock’s big gains--37% over the last 12 months, to $53.625 a share now--also are giving analysts pause until they see more grounds for touting the stock.
Hence, the stock currently gets a “hold” rating from Steve Barlow of Credit Suisse First Boston in New York, who said “there’s some healthy skepticism” on Wall Street that Times Mirror’s strong gains will last much longer.
There’s also skepticism aplenty about the advertising momentum at Washington Post Co. (WPO) and its newspapers, although the publisher now earns most of its profits from TV broadcasting. The high-priced stock, currently $341.375 a share, is considered a top-quality media pick and it has kept ahead of the S&P; 500, but otherwise it’s not sparking much excitement on Wall Street at the moment.
Then there’s Dow Jones & Co. (DJ), one of the industry’s mainstays but a company (and stock) in considerable flux. Although its flagship Wall Street Journal is enjoying nice advertising gains--fueled by the market’s surge over the last two years--Dow Jones is struggling with its Telerate financial-information unit, which competes with Reuters and Bloomberg.
Dow Jones, now at $39 a share, has announced plans to plow $650 million into Telerate (now called Dow Jones Markets), but the move has gotten mixed reviews from the company’s big investors. There’s also been grumbling among some members of the Dow Jones’ controlling Bancroft family that perhaps new top management is needed to give the company and its stock more luster.
Times staff writer James F. Peltz can be reached at james.peltz@latimes.com
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Paper Profits
The long drought for publishing stocks is old news, with the shares outpacing the broader market for more than a year now. Here are some of the big players:
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Monday 12-month Stock* Ticker price %change E.W. Scripps/Class A SSP $38.125 +41% Times Mirror/Class A TMC 53.625 +37 Gannett GCI 84.50 +24 New York Times/Class A NYT/A 40.25 +23 Tribune TRB 41.625 +21 Washington Post/Class B WPO 341.375 +19 Pulitzer Publishing PTZ 46.50 +14 Dow Jones DJ 39.00 +06 Knight-Ridder KRI 36.50 +06 S&P; 500 (price only) +17%
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* Some publishers have multiple classes of stock with different voting rights and other privileges; shares listed above are those commonly held and traded by the general public.
Source: Bloomberg News
