July 1, 2008

LEE's roller coaster ride continues...

(Updated below at the end of the orignal post.)

Ya gotta love some financial analysts. After the barn door has opened and the livestock escaped they tell you it might rain next week.

And so it goes with Deutsche Bank and its analysis of Lee Enterprises (NYSE:LEE), parent of the Journal Times, which we told you yesterday was having a particularly bad year (and in April, and in January, and...)

Today Deutsche Bank downgraded its recommendation of Lee to "hold." In other words, kids, don't rush out and buy any ... even though the price OMG! OMG! OMG! has just fallen through the floor again! Yesterday, it dropped 41 cents, to yet another historic low of $3.99 a share. (Remember, it had been at $49 four years ago, and at $21 last year at this time.)

Well, that was so yesterday. This morning, Lee fell another jaw-dropping 53 cents; it's down to $3.46 a share as I write this. (A 27-year low, according the Associated Press.) There was no apparent reason for today's decline, except for Deutsche Bank's downgrade, which is plenty.

Deutsche Bank has lowered its price target from $14 (good luck with that!) to $6 (ditto).

StreetInsider.com writes today:
Deutsche Bank cited a difficult ad environment, no foreseeable positive catalysts, and concerns over the company’s leverage as justification for the Hold rating.

In addition, the firm said, "Lee is trading at 6.4x FY08 EV/EBITDA, slightly above the newspaper peer average of 6.2x. We believe a premium to the group is warranted due to the company's small/mid-sized market portfolio, which gives LEE a superior growth profile. Our DCF suggests a $6 value, while our ROIC analysis points to $7. Nonetheless, the increasing possibility that LEE may have to obtain covenant relief, cut/suspend its dividend, or take other emergency actions leads us to conclude that the shares will continue to trade below fundamental value."
Lee wasn't the only newspaper stock hammered yesterday. MediaGeneral also fell 9%, and McClatchey -- stumbling over its purchase of Knight-Ridder much as Lee has suffered from its acquisition of Pulitzer newspapers -- fell 5% and was kicked off the Russell 1,000 list of America's largest publicly traded companies. Editor & Publisher magazine's story of yesterday's declines is HERE. No doubt there'll be more to say tomorrow...

Overall, the value of 11 major newspaper companies has dropped $23 billion in the past six months, according to an industry blog, Reflections of a Newsosaur. Now, don't you feel guilty for having taken two papers from that newsrack when you were a kid? Here's the chart they prepared. As always, click to enlarge:
Update, 7/2: OK, it's now the tomorrow we were talking about yesterday. LEE opened badly, dropping to $3.19 a share before climbing back to around $3.40. More speculation came from an article in the San Diego Reader, where Don Bauder wrote about "Newspapers' debt dilemma." Here's what he had to say about Lee:
Lee Enterprises... was supposed to feast on its collection of smaller papers with little competition... But Lee piled up a lot of debt to buy a big paper, the St. Louis Post-Dispatch, along with too many smaller ones. In its most recent quarter, Lee lost $713 million. In the quarter a year earlier, it had made $11.2 million. A year ago, the stock was above $20; now it’s around $4. The dividend yield is above 17 percent. Obviously, that won’t remain. “Lee Enterprises’ financial health is poor,” says analyst Tom Corbett of Morningstar, a stock-rating firm. “Lee has assumed a substantial debt load from its earlier acquisitions, and the company is closing in on the upper limits of its debt covenants.” That is a polite way of saying that it could default on its debt.
As have other reporters, Bauder notes that some other newspaper chains are in worse shape than Lee. He cites Gatehouse Media, an upstate New York chain:
GateHouse’s stock has plunged 85 percent. It’s now below $3. Astonishingly, the company has not dropped its dividend. The yield is almost a staggering 33 percent. I asked the company’s vice president of investor relations, Mark Maring, if he gets any questions about that yield. “Every day,” he joked. Don’t expect that dividend to last.
As LEE climbed to $3.38 this afternoon, its dividend yield is 22.3%. GateHouse Media, at $2.41 per share, is holding at 33.2%...


  1. As much as I despise the JT, I think it is time for your guys to move on past the "beat the hell out of them" phase. You have a nice thing going for us Racinians, stay on the local news updates & keep beating the JT to the punch. That's all you need to do.

  2. We're really not trying to "beat the hell" out of the JT. But it's important to realize we're seeing an unprecedented decline in the newspaper industry. There's a very real chance Lee and other companies could go bankrupt soon. The JT is still making money, but at this rate, not for long. We're facing important questions about who is going to provide local news in our community over the long term. Having worked for the JT for eight years, there's was always a sense that the paper, in some form, would survive anything. Given how fast things are falling apart, now I'm not so sure.