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JULY 5, 2004
Find It Fast At Donnelley  As the only publicly traded U.S. publisher of phone book yellow pages, R.H. Donnelley (RHD
) generates as little interest on Wall Street as any thick, dull book. Publishing revenues grew only 0.2% in 2003. This year, reckons Thomson First Call, earnings will climb just 11%, to $2.85 a share, despite the economic recovery. Worse, the market expects that as broadband spreads, fingers will quit doing the walking and start clicking on Net search engines. But in Donnelley's book of business, you'll find a compelling story, says Mark Bacurin of brokers Robert W. Baird. The stock is 44; his target is 56 in a year. The argument: Donnelley's salesforce is wired into steady ad revenues -- from plumbers, roofers, and carpet cleaners. In contrast, Net giants are strong on national accounts. Donnelley can grow by acting as a local sales agent for Web biggies, says Bacurin. The company says it's exploring a wide range of commercial arrangements with Net companies. Greg Sterling, a yellow pages analyst at Kelsey Group, says Donnelley's dominance in its local markets is a valuable asset to online outfits. The stock is cheap, says Bacurin. Its price-earnings ratio, based on 2005 earnings estimates of $3.14 a share, is 30% below those of newspaper and marketing-services stocks. The discount based on cash flow is more, at 50%, because its depreciation and amortization expense overstates its need for capital spending.
Gene Marcial is away for several weeks. Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.  By David Henry
BW MALL
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