The Zacks Publishing - Newspapers industry consists of companies that provide news and information on digital and print platforms. Some of the industry participants also offer commercial printing, marketing and data services along with digital marketing solutions. The operations of these companies comprise daily and non-daily publications, mobile news and advertising, video products and other niche publications.
Let’s take a look at the industry’s three major themes:
- Declining print readership and advertising revenues have for long been the trend in the U.S. newspaper publishing industry. Nevertheless, the industry participants are evolving from being pure news-content providers and advertisement platforms. Rapid digitization in the core areas of advertising, subscriptions and sales, printing, and distribution services has turned out to be a major source of revenues. Companies are now focusing on creating content for mobile devices, online advertising based on user experience and personalized content to lower their dependence on traditional advertising.
- Readers’ preference for accessing news online, mostly free, has made the industry’s print-advertising model increasingly redundant. As readers started thronging the Internet, advertisers followed suit, as did newspaper companies. Trimmed print operations paved the way for online publications that led to the development of a pay-and-read model, as adopted by The New York Times Company (NYT - Free Report) . The approach backfired for a handful of newspaper companies, but some managed to make a mark in digital subscription business by maintaining content exclusivity.
- Newspaper publishing companies are strengthening their portfolio via alliances and buyouts. They are taking the consolidation route to create economies of scale, widen their reach and become an all-in-one destination point for advertisers. Most companies even segregated their broadcasting properties from the print business as a means to unlock value. Companies have also been offloading assets that bear no direct relation to core operations.
The newspaper publishing industry is no longer restricted to print. Changing consumer preferences and innovative technologies have altered the way news is offered and consumed. It goes without saying that the alignment of the print and digital model has not been an overnight phenomenon.
Zacks Industry Rank Indicates Dismal Prospects
The Zacks Publishing - Newspapers industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #192, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of July, the industry’s earnings estimate for the current year has gone down by approximately 5.3%. The same for 2019 has declined 9.4% during the same period.
Our proprietary Heat Map shows that the industry’s rank has remained in the bottom half in the past eight weeks.
Despite the industry’s drab near-term prospects, we will present a few stocks that investors may hold on to. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Stock Market Performance: Industry Vs Broader Market
The Zacks Publishing - Newspapers industry has outdone both the broader Consumer Staples sector and the Zacks S&P 500 composite over the past year.
The industry has rallied 18.4% over this period compared with the S&P 500’s gain of 5.8% and the broader sector’s decline of 9.5%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing publishing stocks, the industry is currently trading at 17.18X compared with the S&P 500’s 16.36X and the sector’s 18.24X.
Over the last five years, the industry has traded as high as 33.24X, as low as 12.07X and at the median of 19.48X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Evidently, soft print advertising revenues remain a major headwind. This has compelled many operators to critically evaluate the economic viability of their traditional print operations, with many deciding to exit the business altogether and solely focus on the digital format instead. Companies are turning more subscriber-oriented, adopting paywall strategies and new pricing techniques to generate more revenues.
None of the stocks in the Publishing - Newspapers space currently holds a Zacks Rank #1 (Strong Buy) or 2 (Buy). However, we are presenting two stocks with a Zacks Rank #3 (Hold) that are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gannett Co., Inc. (GCI - Free Report) : For this media and marketing solutions company, the consensus estimate for current-year earnings has increased 3.7% over the last 30 days. The stock has outperformed the Zacks Consensus Estimate for earnings in each of the trailing four quarters.
Price and Consensus: GCI
New Media Investment Group Inc. NEWM: The Zacks Consensus Estimate for current-year earnings has remained stable over the last 30 days. The company invests in, owns and operates local media assets.
Price and Consensus: NEWM
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