Shares of newspaper publishers traded mostly higher Wednesday as a Credit Suisse analyst said the sector's continuing revenue struggles are likely cyclical.
John E. Klim initiated coverage on New York Times Co. and Gannett Co. with "Outperform" ratings and started Belo Corp., Journal Communications Inc., Lee Enterprises Inc., McClatchy Co., Media General Inc. and E.W. Scripps Co. at "Neutral."
In a research report, Klim said the group's ongoing revenue difficulties _ which have been exacerbated by the increasing shift of readers and advertisers online _ appear to be mostly cyclical, but that a recovery may not begin until late 2008 or whenever the housing market firms up.
Klim is not overly concerned with how newspaper publishers will contend with the shift online, saying the companies will change to become "more digitally-centric multimedia operators." He anticipates the publishers will cut their print, production and distribution costs over the next five years through outsourcing and in-market partnerships to keep pace with the shift.
"Newspapers' reach remains impressive and the content remains relevant, even in this on-demand, highly fragmented media environment," Klim wrote.
The analyst acknowledges the sector still has near-term revenue worries, but sees limited risk to the stocks because of low investor expectations, free cash flow support and an appealing return on investment.
Shares of New York Times gained 39 cents, or 2.3 percent, to $17 in morning trading, while Gannett added 97 cents, or 2.8 percent, to $36.02.
Elsewhere in the sector, Belo's stock climbed 25 cents to $16.80. Shares of Media General rose 79 cents, or 3.6 percent, to $22.49, while E.W. Scripps added 75 cents to $43.75.
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