More Carnage Coming in Newspaper Stocks

Goldman Sachs has another ghastly report for newspapers.  You know a report is going to be bad when it starts out with The good news for publishers: 2006 is over.  The bad news for publishers: 2007 is shaping up to be an even tougher year.  2006 is noted as the first year in history where there was not a recession and newspaper revenues declined.  The reports says 2007 is starting out even weaker than 2006.  It notes deteriorating trends in the important classifieds section equates more weakening trends.  It even states that Q1 revenues may be down in the 4% to 5% range.  Goldman Sachs noted that it sees continued downward pressure on earnings estimates leading to more downside in the stocks.  Goldman does admit that after 3 years of sharp underperformance that it is painfully aware that its negative view has become the consensus view.  This notes that the newspaper stocks continue to trade well above the lower end of historical valuations, as the decline in share prices has been driven mainly by estimate reductions rather than multiple compressions.  Goldman sees meaningful room for more downside in the group, particularly as estimates move lower.  It sure sounds like if you made the newspaper sector a movie, it would be titled “The Good, The Bad, and The Fugly.”  Don’t you just know that newspaper executives hate Craigslist?  How many newspaper executives get their news off of PDA’s?

Goldman Sachs also notes that the March 31 deadline for Tribune (TRB) has a possibility of being extended again.  Here is a breakdown of the prices for newspaper stocks:
Stock                    Price        52-Week Range
Tribune (TRB)    $31.13    $27.09 to $34.28
Gannett (GCI)    $56.05     $61.65 to $63.50
NYTimes (NYT) $23.35   $21.54 to $26.90
Lee Ent. (LEE)    $29.78    $22.98 to $35.65
McClatchy (MNI) $31.36    $31.25 to $50.64

We would liek to note that Cramer has panned newspapers, we noted McClatchy (MNI) as a company that management can’t fix, and we noted the death spiral in the sector on Goldman’s recent notes in the sector.  About the only good thing that newspapers have going is that billionaires and private equity firms still have some interest in the companies, but one would wonder why the wouldn’t try to step in after the companies have felt more pain.

Jon C. Ogg
March 29, 2007