Shares of Gannett (GCI, Financial) surged 17.68% today after Citigroup analyst Jason Bazinet placed the stock on a "90-day positive catalyst watch" and upgraded his rating to neutral. Bazinet believes the U.S. Department of Justice's current lawsuit against Alphabet's Google could positively impact Gannett.
Gannett is the largest newspaper and digital publisher in the U.S., owning brands like USA Today. In 2019, New Media Investment Group acquired Gannett and continued to operate under the Gannett brand. The acquisition brought significant debt, and since then, the company has faced challenges due to disruptions in the print newspaper business.
This year, Gannett's shares have risen 120%, driven by promising progress in its digital transformation. Digital revenues now make up 44% of total revenue, with management expecting this to reach 50% by next year. Additionally, Gannett has a robust digital marketing solutions business with strong customer retention and average revenue per user. From 2019 to Q2 2024, Gannett reduced its debt from approximately $1.76 billion to $1.09 billion.
Investors view the DOJ's lawsuit against Google as a significant catalyst. The DOJ alleges that Google has monopolized search through anti-competitive practices. In a related case, Gannett claims that Google's monopoly over advertising tools and software has hindered ad sales growth for news publishers. Bazinet believes a favorable DOJ outcome would benefit Gannett.
Currently, Gannett (GCI, Financial) is trading at $5.425. The stock has shown significant volatility, with a 52-week low of $1.66 and a 52-week high of $5.91. Gannett's market capitalization stands at $800.73 million. Despite the recent surge, the stock's GF Value suggests it is "Significantly Overvalued" with a GF Value of $1.85. For more detailed valuation, you can visit the GF Value page.
In terms of financial health, Gannett has a challenging balance sheet. The debt-to-equity ratio is notably high at 4.96, and the company's Altman Z-score of 0.73 places it in the distress zone, implying a risk of bankruptcy within the next two years. The Beneish M-Score of -2.87, however, indicates that the company is unlikely to be manipulating its financial statements.
Gannett's profitability is under pressure, with a negative return on equity (ROE) of -33.16% and a negative return on assets (ROA) of -4.43%. On a positive note, the company has shown an expanding operating margin, which is a good sign of improving operational efficiency.
Overall, while Gannett (GCI, Financial) is making strides in its digital transformation and debt reduction efforts, significant financial and operational challenges remain. Investors should weigh these factors carefully when considering their position in Gannett.
