Novice Investing - No Knight In Shining Armor

Date: Friday 29th 2008f August 2008 02:01:16 AM

No Knight In Shining Armor - 04/17/2006

By: Novice Investing Staff

Newspapers business has been terrible for more than a year now. Readership and subscription has been steadily declined, notably to the increasing users that go online looking for news. Monday morning brought news from Knight Ridder Inc. (KRI), which, as you guess, reported less than stellar first quarter earning.

Earning for the quarter fell to 42 cents per share versus 59 cents per share estimate. The company stock surprisingly barely budge from this announcement. While parts of the publishing business is being sold to McClatchy, overall business is still challenging. Furthermore, this industry is plagued with high property plant and equipment cost and goodwill. At Knight Ridder, both of these figures are a combined $ 2.97 Billion while depreciation ran at a rate of merely $ 98 million annually. This suggests that it takes a long thirty years to depreciate Knight Ridder's fixed assets. Is that conservative? Given the long history of new means of delivering media every decade or so, Knight Ridder's depreciation cost seems to us to be too low.

Other newspapers too experience similar problem of high fixed cost and declining readership. To counter it, some newspapers outfit has been buying some online content such as New York Times Co. (NYT) purchase of About.com last year. Most newspapers stocks are trading at the low teens, which can be attractive if they do not revise their earning figure downwards over and over. Gannett Co. Inc. (GCI), for example, is trading at 10.94 forward earning estimate and close to 52 week low. However, as we mention several times, goodwill and property plant & equipment is pretty huge components for newspapers company. For Gannett, the combined figure is a whopping $ 12.5 Billion while depreciation cost only run at a rate of $ 275 Million annually.

In the medium term, newspapers stocks can rise from here if they can keep their readership intact for the next few quarters. The more attractive candidate will be newspapers company with some internet exposure such as New York Times Co. (NYT) and Gannett Co. (GCI)

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Knight Ridder Inc. (KRI) or any other securities.

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