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Gannett Co., Inc. (GCI): An Untapped Media Income Investment

Published on April 22, 2013 at 10:56 am by The Motley Fool in News
Gannett Earnings ReportAfter taking note that many major media companies have a cash problem (too much cash), meaning they could look to increase their dividend yields in the interim, it turns out one of the overlooked media companies is already paying an impressive dividend yield.
Gannett Co., Inc. (NYSE:GCI) is an international media and marketing company paying a 3.7% dividend yield. Its portfolio includes USA Today and CareerBuilder, which provide solid cash flow for rewarding shareholders, where its return on equity is in excess of 18%. This is most impressive when you consider that major peer Meredith, which pays a 4.1% dividend yield, has a ROE of only 13.8%.
After Gannet cut its dividend payment during the height of the financial crisis, it has been steadily upping its dividend of late.



Gannett Co., Inc. (NYSE:GCI)’s major peer Meredith engages in magazine publishing, television broadcasting and video creation. Its publishing advertising fell 11% in 2012 and 8% in 2011, but the company’s looking to shift toward digital platforms via strategic acquisitions. This is a similar strategy that Gannett is looking to make.
This includes Gannett’s acquisition of Rovion, which is famous for its principal product Ad Composer that facilitates a self-service platform for creating rich media and mobile HTML5 ads. Gannett Co., Inc. (NYSE:GCI) also acquired Mobestream Media and BLiNQ Media to enhance digital marketing. Meanwhile, Gannett also owns the fast-growing career site CareerBuilder.

One of the most exciting things about Gannett is its move toward a subscription-based model. Gannett’s fourth quarter 2012 earnings were up over 23% year-over-year thanks to higher television advertising and its subscription-based model.

Gannett is also reducing debt, now at $1.4 billion at the end of 2012, while also being able to return impressive cash flow to shareholders via share buybacks and dividends. It upped its annual dividend by 150% in early 2012 and announced a new $300 million share buyback program.

Going into 2013, Gannett Co., Inc. (NYSE:GCI) had 21 hedge funds long the stock. This includes the top hedge fund owner by market value, Ariel Investments, with a $159 million position in the stock and making up 3.3% of its 13F portfolio.

Other media comps

Two other big time global-media companies include News Corp (NASDAQ:NWS) and The New York Times Company (NYSE:NYT) . News Corp operates six segments, including cable network programming, TV and publishing. News Corp’s most talked about catalyst for the interim is the impending spin-off of its publishing unit.
News Corp (NASDAQ:NWS) posted inline results last quarter, but trimmed its full year operating income target due to softness in Fox Network’s ratings, and challenges for Sky Italia and the Australian newspapers.
The hedge fund interest in News Corp (NASDAQ:NWS), however, is quite interesting. At the end of 2012, there were 17 hedge funds with at least 5% of their 13F portfolio invested in the stock. This includes Children’s Investment Fund with 61% of its fund invested, and Seth Klarman’s Baupost Group with 11%.
The New York Times Company (NYSE:NYT) focuses on newspapers, digital businesses and investments in paper mills. The media company is shifting toward paid access for its content and lowering its dependence on advertising, which is likely to pressure revenue and EPS over the interim.
Much like the entire publishing industry, New York Times is embarking on the conversion of online readers to paid digital subscribers, and the company sold off its non-core businesses to focus on NY Times, which includes its shift toward more dependence in the digital world.
The New York Times Company (NYSE:NYT) had less hedge fund interest than either Gannett Co., Inc. (NYSE:GCI) or News Corp, with only 14 hedge funds long the stock going into 2013. Its largest hedge fund owner by market value was Kahn Brothers, with a $41 million position, accounting for 7.1% of its total 13F portfolio. Its next largest owner was billionaire Ken Griffin with a mere 0.1% of his portfolio invested in the company.

By the numbers

Gannett is on the “cheap’ side of the industry by P/E and P/S standards.
Gannett News
Corp		 New
York
Times		 Meredith
Corp
Forward P/E 8 16 21 14
Price to sales 0.9 2.2 0.7 1.2
While also being having industry leading profitability and return metrics.
Gannett News
Corp		 New
York
Times		 Meredith
Corp
EBITDA margin 21.5% 20% 13% 18.5%
Return on investment 11% 9% 12.5% 8%

Don’t be fooled

The beauty of the two publishers, Gannett Co., Inc. (NYSE:GCI) and Meredith, is their impressive dividend yields. Gannett pays a 3.7% dividend yield and Meredith 4.2%. Despite Meredith’s higher dividend yield, the valuation and returns (ROE and ROI) are much more compelling for Gannett.

The article An Untapped Media Income Investment originally appeared on Fool.com and is written by Marshall Hargrave.

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