Comcast Corporation (CMCSA), Gannett Co., Inc. (GCI): A Closer Look at The Washington Post Company (WPO)’s Valuation

For the Washington Post’s TV broadcasting business, 2012 operating profits came in at $191.6 million. The business’s EBITDA was nearly $205 million. The TV broadcasting business is run by the company’s subsidiary Post-Newsweek Stations, which owns six television stations in the US. 89% of its total revenue derived from advertising time to local, regional and national advertisers.

Recently, Gannett Co., Inc. (NYSE:GCI) expanded its footprint in the broadcasting business by acquiring Belo Corp. (NYSE:BLC) for around $13.75 per share, at a total transaction value of around $2.2 billion. Gannett Co., Inc. (NYSE:GCI) nearly doubled its broadcast assets with this acquisition, as the company became the fourth biggest owner of the major network affiliates, with around 30% coverage of U.S. television households. Gannett Co., Inc. (NYSE:GCI) expects to deliver around $175 million in annual run-rate synergies in three years after closing the deal. About $0.50 per share will be accretive to EPS in the first year. At the offering price of $13.75 per share, Belo Corp. (NYSE:BLC) is valued at 7 times its trailing EBITDA. If the Washington Post’s TV broadcasting business had a similar valuation, it could be worth around $1.43 billion.

How much is the Washington Post really worth?

If we assign no value to the hard-to-value Kaplan education business, The Washington Post should have an enterprise value around $5.58 billion (including $250 million for the newspaper business), a much higher valuation than its current enterprise value of $4.16 billion. Consequently, it should be worth at least $795 per share, 34% higher than its current trading price.

Looking forward, the Washington Post should improve Kaplan by focusing on the consistently growing Kaplan International business. Moreover, because Washington Post seems to be undervalued at its current trading price, the company might use $250 million from newspaper divestment to repurchase its shares. A repurchase would give existing shareholders more than a 5.8% buyback yield.

The article A Closer Look at The Washington Post’s Valuation originally appeared on Fool.com and is written by Anh HOANG.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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