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Hold onto Gannett

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We maintain our long-term Neutral recommendation on Gannett Co., Inc. (GCI - Free Report) with a target price of $28.00.

Why the Reiteration?

Soft economic conditions along with sluggishness in advertising demand have been weighing on the company’s performance. This was evident from the company’s recent fourth-quarter 2013 results, which were not too impressive, as the bottom line did beat the Zacks Consensus Estimate but fell 25.8% year over year. Top line also disappointed by declining 9.9%.

Advertising, which remains a significant source of revenue, is largely dependent upon the global financial health. We observe that publishing advertising revenue of this Zacks Rank #4 (Sell) stock fell 10.3% during the fourth quarter of 2013, following a decline of 5.9% in the third quarter. Other publishing companies such as Journal Communications, Inc. , The E.W. Scripps Co. (SSP - Free Report) and The New York Times Co. (NYT - Free Report) are also encountering a similar setback.

Advertisers are shying away from making any upfront commitments in an economy that is showing an uneven recovery. As a result, Gannett is taking initiatives to diversify its business model by adding new revenue streams in an effort to make it less susceptible to economic conditions.

The company is also adapting to the changing face of the multiplatform media universe, which currently includes Internet, mobile, tablet, social media networks and outdoor video advertising in its portfolio. This is evident from the company’s acquisition of the television-station operator, Belo Corp. This deal is a perfect fit for the company as it is expected to transform Gannett’s business model, which was largely focused on low margins newspapers into a high-margin multi-media business.

Gannett initiated a subscription based model, commenced Digital Marketing Services in top markets, and refurbished its iconic brand, USA TODAY to generate new advertising and marketing revenue sources.

Cost containment is one of the aggressive approaches undertaken by the publishing companies to keep bottom-line growth intact amid declining revenue and a shrinking market share, and Gannett is no exception. The company has been realigning its cost structure and streamlining its operations to increase efficiencies, and in turn the operating performance.

Given the pros and cons embedded in the stock we advise you to hold on to Gannett, until we recommend otherwise.

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