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Billionaire Carl Icahn Acquired 6.6 Percent of Gannett’s Shares

August 18, 2014 | About:

According to Guru Focus Real Time Picks, on Aug. 4, activist investor Carl Icahn (Trades, Portfolio) bought shares of Gannett Co., Inc. (NYSE:GCI) at an average price of $34.32 and holds 14,967,373 shares, worth more than $500 million. The investor Icahn acquired about 6.6 percent of Gannett’s shares and options during the second quarter.

So in this article, let's take a look at Gannett, a $7.8 billion market cap company, which is the largest newspaper publisher in the U.S. and operates as a media and marketing solutions company in the United States and internationally.

Diversifying its portfolio

The company reports operating results under three segments; Publishing, Broadcasting and Digital.

From 2007 to 2012, publishing revenues as a percentage of total sales fell from 88% to 70% while broadcasting revenue increased from 11% to 17%. It is clear that the operational focus has shifted over the past five years as the company adapts to new market demand. Broadcasting and digital have gained in relevance and investment at the expense of publishing.

Icahn believe that the “value could be created by splitting the issuer into separate print and broadcast companies” and has planned to mount a campaign to separate the company’s print and broadcasting businesses.

The fund said in a regulatory filing that Icahn “intend(s) to have discussions with representatives of the issuer’s management and board of directors relating to the planned separation, corporate governance, capitalization and capital allocation.”

Belo Corp. acquisition

On 2013, the firm announced its intention to purchase Belo Corp., a Dallas-based media company and its 20 local TV stations for $2.2 billion. This acquisition also accelerates the shift toward broadcasting in a faster way. Broadcasting would contribute about 60% of total EBITDA, and it will expand to 66% by 2016 because of the presidential election cycle.

Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 18.4x, trading at a discount compared to an average of 22.6x for the industry. To use another metric, its price-to-book ratio of 2.7x indicates a premium versus the industry average of 1.7x while the price-to-sales ratio of 1.47x is above the industry average of 0.97x.

As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $54,034, which represents a 40.2% compound annual growth rate (CAGR).


Final comment

Risks in the U.S. and global economy affect the professional services markets. To offset the challenging economic environment, companies are working hard to optimize process and diversify its business core. Gannett is very well positioned to take advantage of future market conditions.

Moreover, the stock price increase carried by Gannett was too big. In my opinion it is the right time to add Gannett’s stock to your long-term portfolio because the firm is well positioned because of its diverse business model.

Hedge fund guru like David Dreman (Trades, Portfolio) and John Keeley (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014, and I would advise fundamental investors to consider adding this stock to their portfolios as it seems to be an attractive option for investors in the near future.

Disclosure: Omar Venerio holds no position in any stocks mentioned.

About the author:

Omar Venerio is capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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GuruFocus has detected 1 Warning Sign with Gannett Co Inc $GCI.
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