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Gannett Co., Inc. (GCI) Message Board

  • longtimefollower longtimefollower Jul 15, 2009 7:03 PM Flag

    What kind of multiple should a $1.50 in EPS blue chip.... sell for, on DEPRESSED recession year earnings? Historically, the Street has allowed these kind of companies to trade at double digit multiples, KNOWING that a pending MATERIAL EARNINGS REBOUND will bring about higher valuation levels. It seems CRAZY to me that with expectations of $1.50 in EPS this year, and PROBABLY $2.50 in EPS in 2010, GCI should be selling at ONLY 3x 2009 earnings...even after today's run up. The reality is simple and clear cut: If they do $1.50 this year, and $2.50 next year, this stock will be trading at AT LEAST a 10x multiple in 12-18 months, and we will be looking at a $20-30 stock.

    In the meantime, FAIR VALUE RIGHT NOW for this stock should be something on the order of 6-10x expected earnings for this year. So I think a good target range, short term, for this stock, is $10-15.

    Once the lemmings, in their infinite wisdom, suddenly decide that WHOOPS....this business model is NOT dead after all, you will see them PILING ON this CASH FLOW MACHINE that is GCI. And, owing to the dramtic cost cutting at GCI, you will see the company come VERY CLOSE to record earnings levels again, in a few years, at the peak of the next cycle.

    So, when we peak out at $4-5 in EPS, in 3-4 years, and the stock is selling at $35-50 again, those who thought they were "going bankrupt," and ignored this stock at $2 and $3 and $4 and $5 (or worse yet, SOLD out), will be, and should be, fundamentally questioning their ability to know value when it bites them in the ass.

    This is a dramatically undervalued franchise, and we are at an INFLECTION POINT in the ad revenue cycle, as we speak. Meanwhile, free cash flow is still MATERIALLY positive....which is all the more reason that the sell off below $10 is just patently absurd.


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    • I agree--great post. Fundamentally, I agree. But we need to recognize that the street is a big discounting mechanism where what you've done matters a lot less that what you will do.

      In that light, you can see that the street has grave concerns about the sustainability of earnings. It's analogous to the beeper business. Beepers are, for forward-thinking purposes, a dead business. But if you've ever worked within a large healthcare organization (as I have) then you know that there are still zillions of beepers in use by some highly educated professionals. More than half of the 7,000 employees of the organzization I worked at used beepers. It must be a very profitable business for somebody. But if that company is publicly traded I doubt whether the market assigns it a big multiple. And at the end of the day the stock is only worth what people think it is worth. GCI's industry has big secular problems that were not so much created by the economic downturn as they were revealed (and exacerbated) by it.

      That said, I do feel that the doom and gloom surrounding media companies and newspapers in general is overdone. A rebound in advertising will make this an easy three-to-five bagger. If the newspaper industry can find a way to make the Web pay, then that just adds fuel to the fire. I believe that will come, too, though it will probably never be as profitable as the print side of things.

      Disclosure: Holding at $4.05 and seriously considering killing my limit sell order at $5.19.

      • 1 Reply to tgagrippa
      • I believe GE's and C's or any deep cyclical dependent "business model" like a home builder or shipping company has PROVEN to have more flaws than GCI's.

        But investors still believe GE and C and FDX and TOL and CAT, etc, etc. will be around in 2 or 3 years.

        Gannett's cash flows and recurring earnings stream HAS BEEN MORE STABLE AND POSITIVE THAN many other industries and thousands of other companies!!!

        The mass hysteria over the "end" of newspapers has caused Wall Street and main street investors to shun GCI's very profitable, unique businesses, simply and foolishly by disregarding the likelihood that ad revenues will reappear in our pop culture / buy me now society from the coming upturn in consumer and business spending.

        I CAN list hundreds of other companies I have witnessed (over 25 years of trading) come back from the dead and stock prices of $1 or $2 a share near a recession low, that trade at $20 or $30 or more 3-5 years later when the economy is humming along. GCI may provide the best "chance" of such a trade/investment pattern out of all the ones I have played in the past.

    • great post

    • that after slashing the dividend by 90% or so about 6 months ago, IF the company uses the increased cash flow to pay down debt, the company should be virtually debt free in 4 to 5 years.

      i agree with your thoughts and just hope that i do not become impatient and sell if the stock gets back to about $10.

      i too think that this is a solid franchise but i also have to admit that getting news off the internet is very easy - - - but in the end it is very cheap means to be able to conveniently read news over breakfast.

      • 1 Reply to submisogringo
      • People will ALWAYS want someone to "aggregate" their news, and tell them what they need to know. (You don't get this as readily, or as conveniently, on the web.) Advertisers want the higher visibility of larger PRINTED DISPLAY ads. Newspapers are the RELIED UPON AND TRUSTED SOURCE for local news...and truly the ONLY legitimate "one-stop shop." Add to this the fact that the vast majority of major dailies are now in "one newspaper towns," and one can see how the business model for the daily newspaper is still, in the main, VERY MUCH INTACT.

    • imo's funny you say that i was so close of buying a boatload of this stock the other day.
      So close i'll tell you...i had typed GCI in, quantity and market order.
      I got a PHONE CALL which distracted my inner voice telling me to buy.
      Though I still own a few shares from 6+ years back...was looking to add more.
      Next time i wont make that mistake again....let the phone ring...that's what we have voice mail for anyway.

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