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Gannett Co., Inc. (GCI): A Cheap, Dividend Paying Stock That You Shouldn’t Miss

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The first time I’d looked at USA Today publisher Gannett Co., Inc. (NYSE:GCI) in July last year, the company was making some really impressive moves and positioning itself for the digital age of newspapers. More than nine months down the line, the stock has appreciated almost 40% since I first covered it, reaffirming my faith in management’s execution and the company’s direction.

However, shares of Gannett Co., Inc. (NYSE:GCI) fell around 5% after the company released its first-quarter earnings late last month. But then, it’s nothing new since Gannett has a tendency of dropping after releasing earnings results and the same thing had happened in February this year. Back then, I’d recommended that investors buy shares of Gannett, and I would do the same now.

After all, Gannett Co., Inc. (NYSE:GCI) trades at just 10.5 times trailing earnings (almost half the industry average), sports a forward annual dividend yield of 3.90%, and has the potential for solid stock price appreciation. The company has done well with its transformation and its recently-reported first-quarter report shows that Gannett is moving in the right direction.

Solid yet again

Gannett Co., Inc. (NYSE:GCI)Gannett Co., Inc. (NYSE:GCI)’s revenue improved 2% in the previous quarter to $1.24 billion from the year-ago period while non-GAAP earnings increased 9% to $86 million, or $0.37 per share. Gannett beat estimates on earnings and matched on revenue. However, as always, all eyes were on the company’s publishing division, which accounts for 70% of its revenue.

But, revenue from this division declined marginally from the year ago period, as a 4.5% decline in advertising revenue dragged down the segment’s performance. However, the good thing is that digital revenue in the publishing segment jumped almost 76% while circulation revenue turned in an improvement of almost 9%.

Paywall’s the way ahead

The company’s all-access subscription model, or simply paywall, has turned out be pretty successful and helped Gannett Co., Inc. (NYSE:GCI) record a jump in revenue from its domestic publishing operations for the first time in seven years. Gannett has aggressively rolled out its subscription model, covering all 78 of its markets by the end of 2012. 45% of Gannett’s subscribers have activated the digital access and the company intends to exceed its target of 60%.

Moreover, Gannett Co., Inc. (NYSE:GCI) had 50,000 digital-only subscribers at the end of the first quarter and one can expect this number to grow substantially by the end of this year. Gannett is targeting digital-only subscriber growth of five to seven times that of 2012 levels and this should result in better circulation revenue going forward.

One thing’s pretty clear by now — newspapers aren’t dead and they are doing pretty well in their digital avatars. Take The New York Times Company (NYSE:NYT) for example, which has been witnessing robust growth in its digital circulation. Times erected a paywall for access to its content around two years back and the good news is that it’s still growing at a rapid pace.

According to a report released last week, Times’ total average digital circulation on weekdays jumped 41%, and for Sunday, it jumped 45% for the six-month period ending in March. Digital circulation pushed up Times’ overall circulation while it saw a decline in average print circulation. Similarly, The Wall Street Journal, which is the largest selling newspaper in the U.S. and is owned by News Corp (NASDAQ:NWS), is also relying on digital to grow its circulation.

According to Alliance for Audited Media, WSJ’s average circulation on weekdays jumped 12%, primarily driven by growth in digital, which now accounts for 40% of its total circulation. The Journal had erected a paywall for its online version a long time ago and this has paid off for it pretty well.

In comparison, Gannett Co., Inc. (NYSE:GCI) had rolled out its paywall just last year and I believe that the solid growth it is witnessing can continue going forward. The company’s all-access content model has performed above expectations and what’s great about it is that customers have also adopted it. The company would be focusing on various marketing strategies to further expand its digital subscriber base.

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