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Sydnee Gatewood
Sydnee Gatewood
Articles (3160) 

John Rogers' Firm Extends Meredith Subscription

Ariel Fund adds to position in magazine publisher

John Rogers (Trades, Portfolio), leader of Ariel Investments, disclosed earlier this week his firm upped its stake in Meredith Corp. (NYSE:MDP) by 39.05%.

The guru's Chicago-based firm invests in undervalued small and mid-cap companies that have sustainable competitive advantages, high barriers to entry and predictable fundamentals that allow for double-digit earnings growth. Rogers emphasizes that patience, independent thinking and a long-term outlook are necessary for generating good returns.

According to GuruFocus Real-Time Picks, a Premium feature, the firm invested in 1.29 million shares of the Des Moines, Iowa-based media conglomerate on Oct. 31, expanding the equity portfolio by 0.22%. During the quarter, the stock traded for an average price of $11 per share.

Ariel now holds 4.6 million shares total, which represent 0.77% of the equity portfolio. GuruFocus estimates the firm has gained 6.08% on the investment so far.

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The company, which owns a variety of magazines, television stations, websites and radio stations, has a $709.02 million market cap; its shares were trading around $15.56 on Wednesday with a forward price-earnings ratio of 5.46, a price-book ratio of 1.57 and a price-sales ratio of 0.25.

The median price-sales value chart suggests the stock is undervalued. The GuruFocus valuation rank of 10 out of 10 supports this assessment.

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Meredith reported its fiscal first-quarter 2021 results on Nov. 5. It posted earnings of 88 cents per share on $694 million in revenue, which declined 4% from the prior-year quarter as a result of the Covid-19 pandemic as well as adjustments to the magazine portfolio.

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In a statement, President and CEO Tom Harty said the company is "off to an encouraging start."

"While the COVID-19 pandemic continues to impact total Company revenues, sequentially our year-over-year performance has continued to recover," he said. "Our efforts to enhance financial flexibility and control costs have produced tangible results as demonstrated by our growth in operating profit and free cash flow. We anticipate these improvements will continue benefiting shareholders as macroeconomic conditions continue to improve and enable us to more meaningfully shift our focus to deleveraging and other long-term initiatives."

GuruFocus rated Meredith's financial strength 3 out of 10 on the back of a low cash-to-debt ratio and weak interest coverage. Additionally, the company is being weighed down by an Altman Z-Score of 0.66, which warns it could be in danger of going bankrupt if it does not improve its liquidity. Its assets are also building up at a faster rate than revenue is growing, which indicates the company may be becoming less efficient.

The company's profitability fared better, scoring a 7 out of 10 rating. Even though the operating margin is in decline, it is still outperforming compared to its industry peers. Meredith's returns are also negative and underperforming a majority of competitors, but the moderate Piotroski F-Score of 4 implies business conditions are stable. As a result of recording a decline in revenue per share over the past 12 months, the predictability rank of one out of five stars is on watch. GuruFocus says stocks with this rank return, on average, 1.1% annually over a 10-year period.

With a 10.14% stake, Rogers is the company's largest guru shareholder. Chuck Royce (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, John Hussman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also have positions in the stock.

Portfolio composition and performance

The Ariel Fund's $6.57 billion equity portfolio, which was composed of 147 stocks as of the end of the second quarter, is largely invested in the financial services (19.34%), communication services (16.92%) and industrials (14.17%) sectors.

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The fund's five largest holdings as of June 30 were Microsoft Corp. (NASDAQ:MSFT), Baidu Inc. (NASDAQ:BIDU), Philip Morris International Inc. (NYSE:PM), Mattel Inc. (NASDAQ:MAT) and Kennametal Inc. (NYSE:KMT).

In its third-quarter commentary, the firm revealed the Ariel Fund returned 4.56% during the quarter. The fund posted a return of 24.67% in 2019, underperforming the S&P 500's 31.49% return.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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