We reaffirm our long-term Neutral recommendation on
Gannett Company, Inc.
) that also retains a Zacks #3 Rank (Hold) status. Tough economic
conditions along with softness in advertising demand have been
weighing upon the company's performance.
Consequently, the company is trying every means to shield
itself from the impact of an unstable market and has been
contemplating new revenue generating avenues.
Why the Reiteration?
Advertising, which remains a significant source of revenue, is
largely dependent upon the global financial health. We observe
that Gannett's publishing advertising revenue fell 6.6% during
the third quarter of 2012, following a decline of 8.1% in the
Tepid recovery in the economy along with weakness in
advertising demand in the U.S. and U.K. impacted the results.
Advertisers are shying away from making any upfront commitments
in an unsettled economy.
As a result, Gannett is repositioning itself to diversify its
business model by adding new revenue streams in an effort to make
it less susceptible to the economic conditions. The company is
also streamlining its cost structure, strengthening its balance
sheet and restructuring its portfolio. Alongside, it is focusing
on subscription based model and Digital Marketing Services
The company remains well positioned to tap the opportunities
of the rapidly changing business model such as digitalization in
order to keep itself on the growth path. The company recently
provided an update of its growth initiatives and stated that its
long-term objective is to attain an annual revenue growth of 2%
To achieve this, the company is focusing on its subscription
based model and Digital Marketing Services products. Management
expects U.S. Community Publishing division's subscription revenue
to increase by 25% by the end of 2013, which would translate into
a contribution of approximately $100 million to operating profit.
For 2012, total digital revenue is projected to come in at $1.3
billion, up 19% from 2011, whereas retransmission revenue is
expected to reach $96 million, escalating 20%.
Based on the above, Gannett now forecasts total revenue growth
of over 5% and earnings in the range of 87 cents to 88 cents for
the fourth quarter. The current Zacks Consensus Estimate for the
quarter is 88 cents a share that dovetails with management's
Other Stocks to Consider
Other stocks in the publishing sector that look promising are
Lee Enterprises Inc.
), which holds a Zacks #1 Rank (Strong Buy) and
The McClatchy Company
), which holds a Zacks #2 Rank (Buy).
GANNETT INC (GCI): Free Stock Analysis Report
LEE ENTRPRS (LEE): Free Stock Analysis Report
MCCLATCHY CO-A (MNI): Free Stock Analysis
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