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Newspaper Publishing Industry Prospects Hinge on Digitization

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The Zacks Publishing - Newspapers industry comprises companies that provide news and information on print and digital 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 been a bother for the U.S. newspaper publishing industry for long. Nonetheless, the industry of late has witnessed a sea change as participants are evolving from operating only as pure news content providers and advertisement platforms. Rapid digitization in core areas of advertising, subscriptions and sales, printing, and distribution services has boosted revenues substantially. Companies are now focusing on creating content for mobile devices, online advertising based on user experience and personalized content to lower dependence on traditional advertising. Some companies are even creating rich media video advertising on their websites. They are also resorting to data analytics and modeling to not only engage the audience but also provide targeted marketing services on behalf of local businesses.
  • Readers’ preference for accessing news online, mostly free, has made the industry’s print-advertising model increasingly redundant. As readers start thronging the Internet, advertisers followed suit, and so did newspaper companies. This shift of advertising from print is likely to accelerate. Reduced print operations have opened up more scope for online publications that in turn led to the development of a pay-and-read model. The approach backfired for a handful of newspaper companies but some managed to make a mark in the digital subscription business by maintaining content exclusivity and deep analysis.
  • Newspaper publishing companies are strengthening their portfolio via alliances and buyouts. They are taking the consolidation route to create economies of scale, widen reach and become an all-in-one destination for advertisers. However, such consolidations have not delivered the desired results in some cases. Another industry trend is that of segregation of broadcasting properties from print business to unlock value. Companies have also been offloading assets that bear no direct relation to core operations. The outcome of this approach is hinged on how newspaper companies make the most of the freed-up resources to reach business-to-business and business-to-consumer markets.

The newspaper publishing industry is no longer restricted to print as innovative technologies have altered the way news is offered and consumed. The alignment of the print and digital model has not been an overnight phenomenon. Newspaper companies have been keeping abreast with technological advancements to reach their target audience more effectively. This dramatic shift to digitization also demands simplification of the operating structure.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Publishing - Newspapers industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #39, which places it in the top 15% 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 solid 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence on this group’s earnings growth potential. Since the beginning of March, the industry’s earnings estimate for the current year has increased approximately 4.3%.

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 23.2% over this period compared with the S&P 500 and the broader sector’s respective gain of 1.2% and 2%.

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 to value publishing stocks, the industry is currently trading at 25.45X compared with the S&P 500’s 16.89X and the sector’s 19.55X.

Over the last five years, the industry has traded as high as 31.24X, as low as 11.08X and at the median of 16.78X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

Bottom Line

Evidently, soft print advertising revenues are a major drag. This has compelled 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. Companies are turning more subscriber-oriented, adopting paywall strategies and new pricing techniques to generate more revenues.

That said, we are presenting three stocks from the Publishing - Newspapers space that are well positioned to capitalize on the above-mentioned opportunities. Of these, the first stock holds a Zacks Rank #2 (Buy) and the remaining two carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The McClatchy Company MNI: The company provides niche publications and community newspapers as well as other print and digital direct marketing services. The Zacks Consensus Estimate for current-year bottom line has been stable over the past 30 days.
Price and Consensus: MNI

Gannett Co., Inc. GCI: For this media and marketing solutions company, the Zacks Consensus Estimate for current-year earnings has been stable over the last 30 days. The company’s bottom line outperformed the Zacks Consensus Estimate by a wide margin in the last-reported quarter.

Price and Consensus: GCI

The New York Times Company (NYT - Free Report) : For this diversified media conglomerate, the Zacks Consensus Estimate for current-year earnings has been stable over the last 30 days. The company has an average positive earnings surprise of 29.4% for the last four quarters.

Price and Consensus: NYT

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