RRD debt has many maturities, but the coupon rates are generally in the 7% - 8% range. The long-dated debt now yields more than the equity, unlike the past few years when RRD's dividend rate was typically higher than the interest rate.
Attracted by this dividend yield, many investors bought the stock. (They surely didn't buy the stock for its revenue or profit growth.) The market has affirmed that at $8, RRD was undervalued. But RRD is now close to $20.
The dividend by itself is no longer a reason to buy this stock at $20 or more. A price above $20 can only be justified with clear improvements in both revenue and profit. Revenue will grow next year due to acquisitions, but so will the dividend expense of the additional shares issued (about 15 million) and the new debt taken on to finance the acquisitions.
2029 bond trading at .96 and yield 7.08 a few minutes ago. The bonds that are being tendered would provide about a 17% capital
gain if they had been purchased at par
Since RRD trades at 40% of it's '94 price I would argue that RRD has capital DEpreciation. You would also see a great deal of appreciation in the bonds if someone waved a magic wand today and made them AA rated. Personally I fail to understand the continued debt buy back and refinancing. spending money to kick the can down the road IMHO. The current bond offering is voluntary, if you like your yield, you can keep your yield!
You are using a figure from bonds that are being retired. They are not paying 7.785 currently when the T-bill is 3%. Bonds do not have capital appreciation and div reinvestment, like shares do.
At this point, the RRD dividend looks quite secure, but RRD debt actually now yields more than the dividend (7.785% on the recent 2029 debt.) If investors like steady income, they might consider the bonds rather than the stock. At $20 per share and a dividend yield below 6%, share investors must believe that RRD can now ignite both revenue and net income growth...something that has eluded them for the past 10 years.
RRD has had a good run-up from its very depressed price levels of a few years ago. And the company has certainly done a good job of cost management in its legacy businesses. However, the key five-year trends for the company are not encouraging. Since 2009, RRD has invested about $2 billion in capital to produce about $600 million in total revenue growth. (If one goes back to 2006, the numbers look much worse!) Over the same period, long term debt has grown by $600 million. That means that every dollar of new revenue generated over a five year period has required a dollar of new debt. Not good. RRD is losing traditional print revenue about as fast as it can backfill with new revenue from all sources.
Over the same period, expenditures on PP&E have been about 40% of depreciation & amortization. This means that RRD is (wisely) not renewing manufacturing assets as they age. This is sensible for a declining industry. The resulting depreciation cash flow is being directed towards acquiring new businesses with growth potential, or acquiring print competitors with volume that can support the legacy manufacturing platforms.
The major acquisitions from 2006 - 2010 were mostly in the same print business space as RRD’s legacy businesses. Many of the acquired plants were shut down and the print volume sent to existing RRD plants which were typically more modern. Unfortunately, organic volume declines in the legacy businesses offset most of this new revenue.
More recent acquisitions are either not print based at all, or are in a different part of the print market (e.g., the acquisition of Consolidated Graphics, which operates a very large number of sheetfed print plants serving mostly regional/local markets.) In the re-investment process, RRD is becoming a much more complex company to manage, with a mix of manufactured products and knowledge-based services, and international in scope. This is seldom a good thing unless it is accompanied by strong revenue growth.
skylesa- lol, good one!
"cynthia" had another post where she claimed to own many thousands of shares. Now this...
You can't say loser much better than posting BS on yahoo boards, hoping it drives a price down.
The Company is diversifying wisely. Print will always be a factor, but will become a decreasing factor in the overall business. The report is good news for investors and employees. We will see a better Company in the future, which is good for everyone. The buggy whip companies that did not diversify went out of business. Those that did went on to better things. RRD will celebrate 150 years of business later this year. Here's to another 150 years!
Over the last 5+ years I have bought and sold this stock, held this stock, watched it go up then give back all the gains. I got out several times at about even to slightly negative. Then last year I saw this stock go down to around $9.00. It took guts, but I built a good position in about a month's time.
We know that the market hated this stock, believing in the death of all printed material. However, printed material is not going away. just like TV being the death of radio back in the 1950's.
RR Donnelley has done a good job buying out many many related companies.
Now they are the last man standing, and this stock can keep going up for a long, long time.
Furthermore, the forward P/E should start to adjust to more historical levels as well as general market average levels. Add to this a great dividend of 5.4%, this stock should move to $30.
After all of these roll ups, this company can move way up in the next several years, $40-$50+.
Sentiment: Strong Buy
RRD reported solid 4Q13 top and bottom line results that were nicely better than expected. Guidance looks decent, but we'll have to wait for tomorrow morning's call for some more color on the results and guidance. RRD's lengthy investor day presentation in the afternoon should further clarify the outlook. Not surprisingly, investors liked the news in after hours trading. With 17.6 million shares or 14% of the float short, there could be some covering to help pop the stock back over $20.
With the dividend returns almost half of what it was last year, there is hardly any growth in this stock. How can a dying print media business sustain long time continues growth. It won't be surprising that the next Qtr earnings will show a loss as at it had happened in the 4th Qtr of 2012. It is very difficult for this stock to sustain the existing value. This stock cannot be valued more than $13/-
Sentiment: Strong Sell
actually it already started. Only a few days until option exp.$18 is the most popular put price for Feb and March. That will be taken out.
Might push it above $19 this time, maybe even $20!
You are right in your assumption though - its value is north of $20, however I think investors are a bit leary because of their past financial blunders.
A good Q will shoot this up pretty high and we could see those 20;s. Alot of the shorts have got out, but im sure there are still plenty around to give us a nice squeeze. I would assume alot of them re-shorted up here.