Newspaper Stocks Rally On Analyst's Forecast

USA Today/The New York Times

Good news is all relative nowadays, as demonstrated by the price rally enjoyed by newspaper stocks Wednesday after Wells Fargo issued a somewhat less negative outlook for 2010.

Gannett Co.'s stock price ended the day up just over 7% to $15.42, and The New York Times Co.'s stock jumped almost 10% to $12.10. More modest gains were seen at E.W. Scripps -- which rose 3.4% to $7.03 -- and A.H. Belo, up 3.8% to $5.70.

At first glance, there wouldn't seem to be much to celebrate in Wells Fargo Securities analyst John Janedis' forecast for 2010, which notes improving advertising trends in December and predicts an 8% to 9% drop in ad revenue for 2010.

It remains to be seen whether newspapers can deliver these modest targets; previous newspaper stock rallies have proved transient.

Still, in this climate, such estimates pass for good news on Wall Street, since it comes on the heels of a roughly 30% drop in revenues in the first nine months of 2009, compared to the same period in 2008.

Of course, it's unusual for stock prices to rise after the forecast of an 8% to 9% revenue drop, but the bounce is a testament to just how dismal the outlook for newspapers has been, and how low newspaper stocks have sunk.

After eight straight quarters of double-digit percentage declines in ad revenue, during which newspaper stocks lost up to 95% of their value, the forecast of a single-digit decline -- suggesting that the steepest part of the slide may be coming to an end -- is actually a positive sign.

However, assuming that 2010 brings the end of losses resulting from the economic downturn, the single-digit forecast would appear to indicate the continuation of the long-term structural decline in the newspaper business resulting from Internet competition. The erosion was already evident before the recession began.

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1 comment about "Newspaper Stocks Rally On Analyst's Forecast".
  1. Jonathan Mirow from BroadbandVideo, Inc. , December 28, 2009 at 3:46 p.m.

    LESS negative. Not up. Still losing - just not as much. What's wrong with you people?