Gannett Co. Inc. (GCI) Quarterly Valuation

500px-Gannett_logo_2011.svg

In the age of the internet, the media industry seems to bring up very strong opinions from investors regarding whether the individual companies are going to be able to weather the change from print to digital.  That conversation is even beginning to move to discussing the prospects of television media versus internet streaming.  Intelligent Investors will avoid some of the speculating about these issues and insist upon seeing the actual financial results of the companies.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Gannett fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Gannett Co., Inc. is an international media and marketing solutions company, delivering content and services across an integrated, multiplatform portfolio. The Company provides access to content on many different platforms, provides digital marketing services to businesses, and provides Internet-based human resource solutions. The Company generates digital revenues through online content subscription fees and advertising in its various digital platforms including more than 130 publishing Websites, 21 television Websites, the management of social engagement advertising campaigns and customer loyalty programs, a daily coupon and deal business, and online recruitment services. In January 2013, the Company’s USA TODAY Travel Media Group acquired 10Best.com. In December 2013, the Company announced that it has completed the acquisition of Belo Corp.

GCI Chart

GCI data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $74.41
MG Opinion Undervalued
Value Based on 3% Growth $28.02
Value Based on 0% Growth $16.43
Market Implied Growth Rate 2.87%
Net Current Asset Value (NCAV) -$11.91
PEmg 14.24
Current Ratio 1.84
PB Ratio 2.51

Balance Sheet – 9/30/2013

Current Assets $1,681,800,000
Current Liabilities $916,000,000
Total Debt $1,980,200,000
Total Assets $6,892,200,000
Intangible Assets $3,337,500,000
Total Liabilities $4,395,300,000
Outstanding Shares 227,890,000

Earnings Per Share

2013 (estimate) $1.99
2012 $1.79
2011 $1.89
2010 $2.35
2009 $1.51
2008 -$29.11
2007 $4.17
2006 $4.90
2005 $4.92
2004 $4.92
2003 $4.46

Earnings Per Share – ModernGraham 

2013 (estimate) $1.93
2012 -$0.17
2011 -$2.04
2010 -$3.75
2009 -$5.44
2008 -$6.63

Dividend History

GCI Dividend Chart

GCI Dividend data by YCharts

Conclusion:

Gannett is an intriguing company for Enterprising Investors, after having passed every requirement of the investor type except the debt to current assets requirement.  The company does not qualify for Defensive Investors, however, because of the current ratio being too low, and the lack of earnings stability or sufficient growth over the ten year period.  As a result, Enterprising Investors should feel very comfortable proceeding with further research to determine if Gannett is suitable for their individual portfolios, keeping in mind the 7 Key Tips to Value Investing.  From purely a valuation standpoint, the company appears undervalued, after growing EPSmg (normalized earnings) from -$6.63 in 2008 to an estimated $1.93 for 2013.  This level of growth significantly outpaces the market’s current implied estimate of growth (2.87%), and the ModernGraham valuation model indicates a value around $74.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Gannett Co. Inc. (GCI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Gannett Co. Inc. (GCI) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Get a free copy of ModernGraham Stocks & Screens: March 2014 by signing up for our free daily email list! Sign up now and make sure you don't miss any valuations.

Leave a Reply

Your email address will not be published. Required fields are marked *