JPMorgan Makes Huge Contrarian Call and Upgrades New York Times


If any media sector has struggled since the new millennium began almost 20 years ago, it is print newspaper journalism. For many, the reasons are clear: The concepts of buying and reading a newspaper are as foreign to many millennials as using a payphone. Across the country, many cities that once had two dailies are down to one, and in some cases, they only publish print editions three times a week.

In a move that is sure to not please the U.S. president, JPMorgan analyst Alexia Quadrani raised her rating on shares of the venerable New York Times Co. (NYSE: NYT) from Neutral to Outperform, and she lifted her price target to $27 from $25. Quadrani cited the stock attractive valuation and also noted a boost in demand for what she termed as “reliable” news outlets.

While the shares have risen nicely from lows that were printed back in November of 2017, they have dropped almost 10% from the highs that were posted in February. While the move higher in the price objective at JPMorgan is clearly a positive, it represents a 15% move from current levels. The upgrade does not appear to be helping much today as shares were trading down fractionally at $23.35 in late Tuesday morning trading.

Like many of the top print newspaper companies, the New York Times has gone to a digital edition to complement the standard print issue, and the JPMorgan analyst cited strong growth in the platform. She said this in the report when discussing the success of the digital offering:

While the stock has already been a significant outperformer (+20% vs. flat year over year for the S&P 500), we continue to see opportunity for further upside as the company migrates from a declining print business focused on cost cutting toward a growth company with a substantial digital presence (~2.6m digital-only subscribers). Digital circulation revenues now account for ~20% of total revenues, slightly higher than what was once the dominant print advertising segment. With now six consecutive quarters of elevated digital subscriber growth, flattish churn and potential for improving average revenues per user, we believe this transformation toward a digital growth story will continue and likely accelerate.

The upgrade could end up being a timely call as the company is expected to report earnings before the market opens on May 3. The report will be for the fiscal quarter ending March 31, 2018. According to Zacks Investment Research, based on two analysts’ forecasts, the consensus EPS forecast for the quarter is $0.14. Analysts surveyed by FactSet expect, on average, adjusted earnings per share of $0.15, up from $0.11 a share in the same period a year ago, and revenue growth of 2.3% to $408 million.

The JPMorgan raised its full-year estimates in the report:

We are raising our full year earnings per share estimates. Fiscal year 2018
comes up modestly from $0.85 to $0.88 while our fiscal year 2019 estimate jumps more meaningfully from $1.00 to $1.07 largely on more optimism around ARPU over the next few years given flattening out of churn and ongoing healthy subscriber growth assumptions. 2020 earning per share also bumps up from $1.15 to $1.28. The benefit of lease costs coming off also help growth accelerate in 2019/2020.

The company’s businesses include The New York Times, websites (including, mobile applications (including news applications), as well as interest-specific applications (such as NYT Cooking, Crossword and others). They include related businesses, such as The Times news services division, product review and recommendation websites The Wirecutter and The Sweethome, digital archive distribution, and NYT Live.

Despite the president’s unabashed dislike for the New York Times, the paper remains one of the country’s oldest and, in some cases, most trusted outlets for news and editorial commentary.

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