Stocks with positive news momentum often chart rallies on the bourses and sometimes turn out to be multibaggers. Investors are thus advised to keep a close eye on news flow. Stocks such as Gannett Co., Inc. (NYSE:GCI), Belo Corp (NYSE:BLC), and LIN TV Corp (NYSE:TVL) have been abuzz with tons of news. Here is a closer look:
Shares of Gannett Co., Inc. (NYSE:GCI) surged last week after it announced it would acquire Belo Corp (NYSE:BLC) – a television company – in a $2.2 billion deal. Since the price of $13.75 for each share came at a premium of 28.1 percent, Belo shares also jumped. Apart from paying $13.75 per share for Belo, Gannett will be assuming existing debt of $715 million. Gannett is an international media and marketing solutions company which has a heavy focus on publishing and digital businesses. In the most recent quarter, nearly 84.5 percent of Gannett’s sales came from these two lines of business while the remaining was attributable to broadcasting. Even though Gannett is largely known as the owner of the CareerBuilder website and broadcasting is a small business, the latter is growing at a faster rate than any of its other segments.
This development is certainly positive for Belo shareholders as the stock has already jumped. Belo Corp (NYSE:BLC) is a solid play in the TV space, which nearly doubled profits last year to $100.2 million while sales stood at $714.7 million, up 10 percent. The company owns a portfolio of 21 highly profitable TV stations which has been propelling the company’s sales and profits. Even after the recent jump in prices, the stock continues to trade at an attractive forward price earnings ratio of 13.8. While strong earnings, sales growth and compelling valuations are positive factors, the only negative is a relatively high level of debt on its books. At a debt equity ratio of 2.3, this is high although still less than the industry average of 3.7. While the stock is attractive, the rally appears to have played out in this case.
On the other hand, Gannett Co., Inc. (NYSE:GCI) stands to benefit tremendously from the deal, even after paying hefty premium. Currently, Gannett’s broadcasting operations consist of 22 television stations – a figure that stands to go up to 43 once the acquisition is completed. The transaction will transform Gannett into fourth largest owner of major network affiliates in the United States. Gannett is already the leading independent owner of NBC affiliated stations and the deal will give it leadership in terms of CBS stations. Financially, the stock is placed comfortably at a price by equity ratio of 12.8, offering annual dividend yield of 3.2 percent.
Deal Beneficial for Others
The deal has opened further upside in small TV station operators such as LIN TV Corp (NYSE:TVL), which operates a bouquet of 32 network affiliated stations. The stock commands a market capitalization of $807 million after a recent rally following a top level management reshuffle and the obvious domino effect from Gannett Co., Inc. (NYSE:GCI)’s buyout. Unlike its hugely profitable independent peers, LIN TV’s operations produce losses. However, the situation is turning around as the company’s sales jumped 36.6 percent to $141 million during the quarter ended March 31, 2013. In the same period, its losses reduced to just $0.86 million compared to $4.27 in the same quarter in 2012. Continuing with this trend, the company is likely to become profitable next year which is reflected in the forward price earnings ratio of 8.5. The company has been buying back its shares in a positive step for enhancing shareholders’ value.
The transaction has worked as a trigger to unlock value in the segment. While Belo Corp (NYSE:BLC) has probably reached its peak in terms of share price, Gannett Co., Inc. (NYSE:GCI) can benefit further once the antitrust qualms are settled. Not in a race to be acquired, LIN TV Corp (NYSE:TVL) will still see better valuations going ahead as Belo’s acquisition price sets a new benchmark.
