McClatchy (MNI), the newspaper chain famous for breaking up Knight-Ridder, was downgraded today. Prudential cut it to "underweight" with a price target of $37. The stock closed at $41.14 yesterday.
Newspaper stocks may have made a bottom. Maybe. They are admired for their cash flow and their stocks are sold as their core businesses shrink. MNI, at $40, is down from a two-year high of almost $75.
There is speculation in the press that The Tribune Company (TRB) may not be able to auction the pieces of the company for prices that would add to the current value of the stock. The New York Times Company (NYT) is under siege by Morgan Stanley and other institutions. Its stock is down by almost half over two years.
The fourth quarter reports from these companies will be a benchmark for two things going into 2007. The first is to what extent cost cuts have improved margins at core newspaper properties. Total revenue from advertising and circulation is almost certain to be flat to down.
The second, more important issue is whether the online businesses that have grown out of the papers are beginning to make a meaningful contribution to total revenue. Some of the audiences for these companies are now very large. The New York Times Company now has an online audience of over 44 million unique visitors. But, there is little proof that the money from that audience yields enough dollars to fill the whole that the company’s newspapers produce.
Most of the large newspaper chain stocks bottomed in late summer and have moved up a modest amount since then.
But, the first and second quarters of 2007 should show if the internet businesses of these companies are finally having a major impact. If so, these stocks may have seen their bottoms. If not, watch out below.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
Top Gaining Stocks
Top Losing Stocks