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DECEMBER 18, 2006
Gannett: A Headliner?  It's no secret that newspaper stocks have been bad news for the market, so the Street has steered clear of the group. But Ed Walczak, managing director at Vontobel Asset Management, whose "deep-value" portfolio is 25% in cash, has acquired nearly a 2% stake in Gannett (GCI
) (GCI), the media giant that owns 91 U.S. daily newspapers, including USA Today, the largest- selling daily, and nearly 1,000 non-dailies and 23 TV stations. Gannett also owns 17 dailies and 300 non-dailies in Britain. Unlike others in its group, Gannett's stock has been on the rise since July, going from 51 to 59.60 on Dec. 6. But it's still down from its 52-week high of 65 in January and is at the low end of its historical price-earnings ratio of 11 to 26. "The stock is cheap here, and we expect it to be in the mid-70s in 12 months," Walczak says. "Gannett's the best in the industry, performing very well and generating abundant free cash flow," adds Walczak, who sees himself as a Warren Buffett-style value investor. Gannett is recapturing part of ad revenues it has lost to the Internet, he notes, from its growing online operatons. Its slim revenue growth of 2%-3% is sufficient to justify owning the stock, he adds, since a big part of that comes from online ads that he says will keep ramping up. Also vital is its 42.5% stake in CareerBuilder.com, the largest U.S. online job Web site, adds greatly to its sales growth. And it has stakes in ShopLocal.com and Topix.net. One of the two major analysts who is bullish is Steven Barlow of Prudential Equity Group (PRU
), who rates Gannett "overweight," with a 12-month stock price target of 65.
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 Gene G. Marcial
BW MALL
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