Our top Sell recommendation in the Publishing sector is McClatchy Company (MNI). As expected, McClatchy eliminated its dividend in January, shortly after a 50% cut in September proved insufficient.
We expect more pain ahead for McClatchy. One-third of MNI’s revenues are in the hard-hit California and Florida markets. Circulation revenue is falling for the 3rd consecutive year, while ad revenue sinks disproportionately (down 21% in 4Q08). In our view, MNI can’t shrink its costs fast enough, posing a risk of tripping bank covenants if the revenue decline should accelerate and thereby raise leverage. Given the continued downward trend in earnings and cash flow, coupled with the company’s high debt-load (Debt/TTM EBITDA was 5.1x).
You're probably wondering what kind of genius still owns McClatchy stock. I can't tell you why anybody would own this stock -- and no offense to Les. If you want to look at the roster of brilliant major MNI stockholders, click here.
UPDATE: From comments, a Gary Pruitt joke:
So this bum walks up to Gary Pruitt and says: "Hey buddy, can you spare a quarter?"
Gary: "Um, sure I guess so, gonna get a cup of coffee?"
Bum: "Naw, I'm gonna buy some McClatchy stock!"