Gannett (GCI 1.84%), parent company of USA Today and the largest news publisher in the country, is typically not known for having eventful earnings calls. In fact, sometimes there isn't a single analyst on the call, as the stock is undercovered by the Street.

That's why I was pretty surprised when, during the Q&A session of the call, retired billionaire investor Leon Cooperman jumped on and made some comments and asked management several questions. In a filing with the Securities and Exchange Commission from April 2020, the most recent one I could find, Cooperman reported owning 2.94% of outstanding shares of Gannett, revealing he had sold a big chunk of shares in the company at the time.

But considering these disclosures are only required if an investor owns more than 5% of outstanding shares, it's been hard to know Cooperman's current status as it relates to Gannett. Apparently, he's still betting on the stock.

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Transforming in a difficult industry

The print news business has been ravaged by the rise of the digital age. Gannett has been tasked with transforming well-known legacy print newspapers like the Detroit Free Press and Indy Star that have been around for decades and centuries into digital-first publications.

In 2019, New Media Investment Corp. acquired Gannett (but retained the corporate name) to become the largest publisher in the country. The move was made to add scale to a struggling ad business, but the deal also required Gannett to take on a ton of debt.

Then Gannett was thrown into the pandemic, which led to shares falling below $1 and forcing management to adopt a poison pill to prevent hostile takeover attempts. Once the economy began to normalize, inflation hit hard and fast, and Gannett spent much of 2022 dealing with higher expenses in its clunky print operations, which led to cost-cutting measures such as layoffs. Print advertising and circulation have struggled, as has all advertising in general.

But Gannett has also made some solid progress over the last three years. It's paid down about $487 million of debt, although still has about $1.27 billion remaining. The company is starting to ramp up and is projecting to generate $80 million to $100 million of free cash flow in 2023.

Gannett is also making progress in moving to a digital-first organization. Paid digital subscribers recently surpassed 2 million, and the company now has more digital than print subscribers.

Finally, the crown jewel of the company, Gannett's digital marketing solutions business (DMS) for small and medium-sized businesses, recently generated record revenue of close to $120 million in Q4 and would be worth more than Gannett's entire market cap if it operated independently.

What Cooperman wants

On Gannett's earnings call, Cooperman acknowledged that he's been invested in the stock for at least five years. He also credited Gannett's CEO Mike Reed for being a large buyer of the stock on his own but said he thinks management has been too slow in bringing down costs.

Cooperman also had some other ideas:

I think we should consider selling off a few of our trophy properties at valuation levels substantially above the public market valuation of our equity to accelerate our debt repayment and surface some hidden value, and I'd like to get your thoughts on that. And secondly, when do you think you'll be in a position to buy back cheap equity? So I think we announced that original authorization before the economy deteriorated when the stock was $7.50 and went down to below $2. It's now about $2.50, $2.60, whatever. So your thoughts on those two questions.

By trophy properties, Cooperman is referring to some of the company's larger, well-known publications. Reed said he's certainly open to this idea, but the opportunity doesn't always present itself and is hard to rely on.

Reed also said he'd love to be in a position to repurchase shares but ultimately feels the best use of capital is to continue to pay down debt and lower its first-lien net debt ratio down to 2 or 1.5 (currently 2.68) so the market is less worried about the company's debt levels.

Nice to have Cooperman aboard

As a shareholder, it's nice to have Cooperman and other legendary value investors like Bill Miller aboard. It's even better to see Cooperman invested enough to hop on the company's earnings call in retirement.

I continue to see a good opportunity in Gannett here. Reed says management is not "worried about debt at all" and sees the "inflection point for long-term sustainable growth hitting toward the end of 2024." The digital business is progressing, and DMS looks especially promising. Free cash flow should continue to ramp up, barring a severe recession.

With just a $435 million market cap, Gannett stock remains extremely cheap at a little more than four times its projected 2023 free cash flow and about 1.5 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).