Shares of The McClatchy Co. “could be worthless,” a new Morningstar report says.“After lowering our sales and profitability forecast, we’ve reduced our fair value estimate on McClatchy’s shares to $0 from $2 each,” stock analyst Tom Corbett wrote. “We think the combination of McClatchy’s exposure to the decline in print ad revenue, high fixed costs, and substantial debt burden, is such that the firm will eventually have to be managed to satisfy its obligations to its creditors at the expense of its equity shareholders.”
McClatchy stock (NYSE: MNI) closed Friday at $1.63, down 36 cents, or 18%. In the past 52 weeks, McClatchy shares have lost 87.5% of their value.
Corbett is the same analyst who last July wrote that GateHouse Media stock “could be worthless.” At the time, GateHouse shares traded on the New York Stock Exchange and were priced at a little above $1. The stock was delisted by the Big Board in October and now trades on the Over The Counter Pink Sheets. Friday the stock (OTC: GHSE.PK) closed at 10 cents a share, up a fraction of a cent from the open.
The Morningstar report traces McClatchy’s woes to the 2006 blockbuster acquisition of Knight Ridder for $4.6 billion, which it called a “bold bet on the future of print journalism.”Holy bankruptcy, Batman!
Since then, the Chicago-based independent stock research firm said, “McClatchy has struggled under the multiple weights of declining revenues, high debt, outsized exposure to troubled housing markets, and the continuing shift of readers and advertisers from print to online. Given the persistence and severity of these conditions, we think equity shareholders are at risk of losing the entire value of their investment.”
Morningstar revised its estimates of McClatchy revenue declines, saying it expects a drop of 16% this year, followed by a 12% decline in 2009. Previously, Morningstar estimated a 15% drop in 2008, followed by a 5% decline next year.
Morningstar also estimates that McClatchy’s EBITDA margins -- earnings before interest, taxes, depreciation, and amortization divided by total revenue -- to shrink to an average 15% annually over the next five years. McClatchy posted a 25% EBITDA margin in 2007.
McClatchy’s “declining revenues and its high debt burden are such that management will eventually have to manage the company to appease creditors at the expense of equity shareholders,” Corbett wrote. “Given the priority claim McClatchy’s creditors have on its assets, we think shareholders are at risk of being left empty-handed.”