Is it possible that newspaper companies are making a
I began to ponder this question after a few traditional media
companies reported solid results in the third quarter. As the owner
of a publishing company I find the story of traditional print media
outlets somewhat fascinating. The recession has been especially
tough on many companies in this sector, hit by the double whammy of
advertising dollars drying up and people relying less on papers in
lieu of online media.
So I consider the company
E.W. Scripps (
to be quite interesting.
E.W. Scripps is
an old-line newspaper company that has actually become a media
pioneer as the times have changed.
With many stocks looking a tad stretched entering the final
months of 2010 I view a company like Scripps as a hidden profit
opportunity. That's because a lot of the easy money in stocks has
already been made, so we need to look to stocks that haven't been
***Scripps was founded in 1878 and grew into one of the largest
U.S. newspaper chains. Cable TV delivered Scripps an opportunity to
become a service provider because the company could wire homes and
depend less on the peaks and valleys of advertising dollars.
It turned a healthy profit in 1995 by selling cable properties
serving 800,000 subscribers to
Comcast (Nasdaq: CMCSA)
for $1.6 billion in stock.
Scripps' next transformation was to become a provider of cable
programming, starting with HGTV. It then built on its success to
create six popular lifestyle channels, including the Food Network.
It also acquired the Travel Channel and GAC (Great American
Scripps essentially turned itself into a small cap when it
decided to spin off its cable networks by creating
Scripps Networks Interactive (
This company went public in 2008, and is now a behemoth with a
market cap of $8.5 billion - far out of our small cap focus.
***To keep shareholders happy, newspaper companies like Scripps
have slashed costs by downsizing staff and cutting back on
newsprint use. Those cuts helped keep profit margins up during the
But while Scripps has lost money the past three calendar years,
the company just posted its third profitable quarter out of the
last four, earning 10 cents per diluted share compared with a loss
of 6 cents per diluted share a year ago. Newspaper advertising
revenues fell 7.1 percent from the prior-year quarter, but TV
revenues shot up 31 percent year over year.
***Investors have driven the stock up 22 percent this year, the
company is debt free, and is sitting on $194 million in cash,
having spent just a few million on several small online companies
this year. What's propelling the stock? It trades with a forward
P/E of 27 times 2011 earnings so it's not exactly cheap. Two of the
three analysts covering the company rate it a buy, with a consensus
12-month price target of $11.50, or 35 percent higher than where
the stock is currently trading.
Clearly these analysts see improving trends in this
traditionally tough industry, or consider Scripps to be undervalued
for other reasons. I believe it just isn't in a popular industry,
and investors have gone with broader investment themes so far this
The driving force behind websites is content, and Scripps is a
pioneer here. With its local content push at newspaper and TV
station websites the company benefits from name recognition in its
To bulk up its newspaper sites, the company is hiring 40
"fellows" for 6 or 12 months to produce multimedia content. Scripps
also has signed a five-year extension to keep its six biggest
stations affiliated with ABC.
Company officials are saying that local advertising conditions
have stabilized, and the recession's end could mean increased ad
spending. Also, the company said in October that it would buy back
one-sixth of its outstanding shares, which should drive up the
With just a few positive trends, there could be profit potential
with this stock. I'm not suggesting it's a double, but 20-40
percent upside is realistic in my opinion over the next year. While
a lot of the 'easy money' has been made as stocks rallied from
their 2009 lows, undervalued and under the radar stocks like
Scripps could present compelling investments for those willing to
dig to find opportunities.
In fact, I'm following a number of undervalued small cap stocks
Here is an opportunity to read a quick review of why
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and you'll be able to see what stocks I've uncovered over the last
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