Gannett Stock: Significantly Price-To-Value Gap And Upside (NYSE:GCI)

Win McNamee

The following segment was extracted from this fund letter.

Gannett Co., Inc. (NYSE:GCIA)

Gannett’s recent results were disappointing, as ongoing secular headwinds that face the newspaper portion of the business weakened further. In addition, ongoing inflation (newsprint, paper, delivery, and wages) added $50M in incremental costs in the first half of the year. To further accelerate the company transformation, management is undertaking a significant cost reduction program (15-20% of total costs), removing a significant amount of fixed costs from the company’s business model.

The cost reduction program is expected to be fully implemented in the fourth quarter and initiatives are designed to generate more than $200M of annual cost savings. Importantly, Gannett’s ongoing growth initiatives remain on track; digital subscription business and digital market solutions which carry attractive margins should eventually help the company return to growth over time. In the meantime, as the cost reduction plan enhances profitability, management plans to continue to aggressively reduce their overall debt levels.

Over the past 3 years, Gannett has paid off close to $600M in debt and year-to-date has already reduced debt by $130M. With ongoing non-core asset sales, Gannett is expected to maintain ongoing debt reduction which should unlock significant equity value over time. With the current market capitalization below the company’s normalized EBITDA and free cash flow, the marketplace fears of further secular challenges and potential recession impact appear significantly discounted in the share price.

We remain patient with Gannett management’s multi-year transformation plan and believe the significant cost reduction program, further debt reduction, and extensive asset base provides a sufficient margin of safety in the near-term. With the share price near all-time lows, we see a significant price-to-value gap and believe long-term upside potential remains at multiples of the current price level.

References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice.

Returns discussed for portfolio contributors and detractors are provided gross of fees and include cash. Additional fees not reflected in the discussion of portfolio contributors and detractors include a management fee paid quarterly. For more information about Miller Value management fees, please reference the Firm’s ADV.

The AAII Investor Sentiment Survey has provided insight into the moods of individual investors since the organization began polling investors in 1987. It has become a widely followed measure. The AAII Investor Sentiment Survey is conducted each week from Thursday 12:01 am until Wednesday at 11:59 pm The AAII Sentiment Survey is open to all members. Results of the AAII Sentiment Survey are automatically tabulated by the organization’s database and published online early each Thursday morning.

The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. The S&P 1500 Value Index draws constituents from the S&P 1500 Index. Value is measured on three factors: the ratios of book value, earnings, and sales to price. The S&P 1500 Pure Value Index draws constituents from the S&P 1500 Index. Value is measured on three factors: the ratios of book value, earnings, and sales to price. S&P Pure Value Indices include only those components of the parent index that exhibit strong value characteristics, and weights them by value score. The S&P 600 SmallCap Value Index tracks the value stocks in the S&P 600 SmallCap Index, identified by three factors: book value, earnings and sales to price. The S&P Composite 1500 Growth Index measures growth stocks using three factors: sales growth, the ratio of earnings change to price, and momentum. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 1500® which combines the S&P 500®, S&P MidCap 400® and the S&P SmallCap 600®. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued.

©2022 Miller Value Partners, LLC

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Author: admin

Leave a Reply

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