We maintain our long-term Neutral recommendation on
Gannett Co., Inc.
) with a target price of $30.00.
Why the Reiteration?
Soft economic conditions along with sluggishness in
advertising demand have been weighing upon the company's
performance. This was evident from the company's recent
third-quarter 2013 results, which were not too impressive, as the
bottom line did beat the Zacks Consensus Estimate but fell 23.2%
year over year. The top line also disappointed by declining
Advertising, which remains a significant source of revenue, is
largely dependent upon the global financial health. We observe
that Gannett, which holds Zacks Rank #4 (Sell), said that
total publishing advertising revenue fell 5.9% during the third
quarter, following a decline of 5.3% in the second quarter. Other
publishing companies such as
Journal Communications, Inc.
The E.W. Scripps Co.
The New York Times Company
) are also encountering a similar setback.
Advertisers are shying away from making any upfront
commitments in an economy that is showing an uneven recovery. As
a result, Gannett is taking initiatives to diversify its business
model by adding new revenue streams in an effort to make it less
susceptible to economic conditions.
The company is also adapting to the changing face of the
multiplatform media universe, which currently includes Internet,
mobile, tablet, social media networks and outdoor video
advertising in its portfolio. This is evident from the company's
acquisition of the television-station operator, Belo Corp. This
deal is a perfect fit for the company as it is expected to
transform Gannett's business model, which was largely focused on
low margins newspapers into a high-margin multi-media
Gannett initiated a subscription based model, commenced
Digital Marketing Services in top markets, and refurbished its
iconic brand, USA TODAY to generate new advertising and marketing
Cost containment is one of the aggressive approaches
undertaken by the publishing companies to keep bottom-line growth
intact amid declining revenue and a shrinking market share, and
Gannett is no exception. The company has been realigning its cost
structure and streamlining its operations to increase
efficiencies, and in turn the operating performance.
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