Are you a would-be value investor? Would you love to buy into Warren Buffett's Berkshire Hathaway, but just can't make the mental leap from "This stock costs $89,000" to "This stock is nonetheless cheap?" Then have I got a deal for you. The name is The Washington Post (NYSE:WPO), and while it's perhaps not as much of a value as Berkshire, its price tag just sparkles; at just $750 and change, it could be a veritable steal. The Washington Post reports Q1 2006 earnings tomorrow.
What analysts say:
- Buy, sell, or waffle? Only seven analysts follow The Washington Post, and only one of them rates the stock a buy. The other six all say hold.
- Revenues. Q1 sales are thought to have risen 10% over last year, to $913.1 million.
- Earnings. Analysts will look for profits to rise 14% to $7.19 per share.
What management says:
My, how time flies. It was only two months ago that we last heard from The Washington Post, on its Q4 and full-year 2005 earnings numbers. The news back then was relatively good. Despite having one week less (52) in fiscal 2005 than was included in fiscal 2004, and despite daily circulation declining more than 4%, the company's flagship newspaper division grew revenues by 2%. Unfortunately, the division's profitability slid 12% on the back of higher costs for newsprint, payroll, and pensions.
The one bright light in print news wasn't actually even in "print" -- the newspaper's online division saw revenues surge 29% year over year, led by advertising revenue that shot up 49%. The company's other success story for the year was its for-profit education unit, where revenues rose 24% and profits grew 30% for the year. Aside from these two units, however, The Washington Post had a bad year, with declining results posted in the company's television, cable television, and magazine units.
What management does:
Investors can hope for the best tomorrow, as the analysts are. But after the last few quarters, they could be forgiven for expecting the worst. Over the last year or so, The Washington Post has seen its gross, operating, and net margins suffer a steady slide. This despite the company's impressive ability to keep revenues climbing (they're up 6% year over year for the last six months).
|
9/04 |
1/05 |
4/05 |
7/05 |
10/05 |
12/05 | |
|---|---|---|---|---|---|---|
|
Gross |
46.4% |
48% |
48.4% |
47.5% |
46.5% |
46.3% |
|
Op. |
15.2% |
17% |
16.7% |
16.1% |
15.1% |
14.5% |
|
Net |
9.9% |
10.1% |
10.1% |
9.7% |
9.1% |
8.8% |
One Fool says:
Thanks to its successful online and education businesses, The Washington Post has suffered less than most of its competitors. The last year has seen rivals like Tribune (NYSE:TRB), New York Times (NYSE:NYT), and Gannett (NYSE:GCI) all lose more than a quarter of their market cap, while The Washington Post lost "just" half that. But the company's strength notwithstanding, its stock price still looks pretty high to me (the above tongue-in-cheek intro also notwithstanding). With a trailing P/E of 23, and a price-to-free cash flow ratio even higher, analysts only expect The Washington Post to grow at 10% per annum over the next five years. The resulting PEG of 2.3 is, by conventional measures, more than overpriced.
My advice: Pass on this subscription and wait for a better deal.
Other competitors:
- Dow Jones (NYSE:DJ)
- Time Warner (NYSE:TWX)
- Princeton Review (NASDAQ:REVU)
Fool contributor Rich Smith does not own shares of any company named above.
