Washington Post... The Last Stable Paper Company (WPO, BRK-A)

Washington Post Co. (NYSE: WPO) has to be thankful that it is not just a newspaper company as most tend to think of it.  Today, came an analyst rating action that was actually in favor of the newspaper, education, and media company.  Standard & Poor’s raised its outlook on the company.  How often do you see that in a company which most think of as a newspaper and media company?

Standard & Poor’s raised its outlook to “stable” due to the belief that the company’s operating leverage will come down… it noted an ample liquidity position that the company could likely keep its net leverage at less than 1x in 2009 and 2010.  S&P has an “A” rating on Washington Post, which may feel like a “AAA” rating when you consider how troubled the media and publishing business has been in recent years.

S&P also noted that it should generate more than $260 million in discretionary cash flow this year, up from a prior forecast of $75 million.

Washington Post has not been immune and has not avoided some of the same economic and secular trends affecting other newspapers, publishers, and media companies.  It has also not been immune to advertising spending cuts compared to the past either.  But noted was that the company’s Kaplan education unit helps to offer the company a more stable income and revenue stream.

S&P noted that the leverage ratios are likely to improve as the company’s losses shrink at the newspaper publishing unit and as its sales and earnings grow in the education operations.  S&P is under the assumption that Washington Post will have more than sufficient cash reserves and cash levels in 2010.

Over the last 12 months, the Washington Post’s education segment contributed 56% of revenues and 51% of EBITDA.  Cable TV systems contributed 17% and 43%, and TV broadcasting contributed 6% and 12%. The newspaper publishing and magazines contributed 15% and 5% to revenues; but the EBITDA contribution from these segments was actually negative.

Warren Buffett has stuck by this one so far in the Berkshire Hathaway Inc. (NYSE: BRK-A) holdings, despite our notation that he could raise significant cash by selling this one and others.  It seems S&P may strongly disagree with our take.

JON C. OGG