Gannett Co. Inc. (GCI) Quarterly Valuation – May 2014

500px-Gannett_logo_2011.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  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 or by reviewing 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  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 Co. Inc. (GCI) 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 February 2014, the Company completes the sale of KMOV-TV in St. Louis, MO, to Meredith 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:

Recent Price $27.08
MG Value $79.28
MG Opinion Undervalued
Value Based on 3% Growth $29.86
Value Based on 0% Growth $17.50
Market Implied Growth Rate 2.32%
Net Current Asset Value (NCAV) -$20.83
PEmg 13.15
Current Ratio 1.55
PB Ratio 2.26

Balance Sheet – 3/30/2014

Current Assets $1,571,200,000
Current Liabilities $1,011,500,000
Total Debt $3,453,900,000
Total Assets $9,009,700,000
Intangible Assets $5,246,700,000
Total Liabilities $6,295,600,000
Outstanding Shares 226,790,000

Earnings Per Share

2014 (estimate) $2.55
2013 $1.66
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

Earnings Per Share – ModernGraham

2014 (estimate) $2.06
2013 $1.82
2012 -$0.17
2011 -$2.04
2010 -$3.75
2009 -$5.44

Dividend History
GCI Dividend Chart

GCI Dividend data by YCharts


Gannett Co. is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the lack of earnings stability or growth over the last ten years.  The Enterprising Investor has a shorter time horizon, though, and only finds a concern with regard to the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research into the company and comparing it to other opportunities through a review of 5 Low PEmg Companies for the Defensive Investor and 5 Undervalued Companies for Enterprising Investors.  From a valuation side of things, the company appears to be significantly undervalued after growing its EPSmg (normalized earnings) from -$3.75 in 2010 to an estimated $2.06 for 2014.  This solid level of demonstrated growth leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.

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 in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

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






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