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Why Gannett's Run May End Soon


Stock is up 270% is six months, and that might be reason to worry.

I'll be honest, as a full-time reporter, I can't help but feel happy to see investors pile into a newspaper company.

Yesterday morning, Gannett (GCI) reported that its third-quarter profit nose-dived 53% as it struggled with an ongoing advertising downturn, but the company still managed to surpass the Street's expectations by working overtime to cut costs.

Investors loved the beat, sending shares soaring 7.5% in afternoon trading.

Other players in the newspaper industry were also glowing green. McClatchy (MNI) was up 7.7%; Media General (MEG) climbed 4.04%; The New York Times Company (NYT) rose 1.9%; A.H. Belo (AHC) jumped 2.5%; and Lee Enterprises (LEE) moved higher by 1.8%.

Gannett is the largest newspaper publisher in the United States, where it publishes more than 80 dailies including the iconic USA Today. Investors have pushed aggressively into the company, but some analysts and technicians are issuing words of caution.

Shares of Gannett have rocketed up 270% over the last six months to a recent $13.88. Craig Dubow, Gannett's head honcho, said that trends look to be improving in advertising. The CEO also said that the company continues to reduce overall debt and noted that it successfully raised $500 million in new debt financing.

Gannet's revenue tumbled 18.4% to $1.34 billion as advertising sales nose-dived 28.4% to $699.6 million, although that was an improvement over the year-on-year declines in the first and second quarters.

Gannett has worked hard to cut costs, analysts noted, including employee furloughs and workforce restructurings. Reported operating expenses were 14.4% lower in the quarter and totaled $1.2 billion.

Tom Corbett, a Morningstar analyst, notes that the company is beating estimates by cost cutting, but that will only take Gannett so far, he says.

"Like other newspaper publishers, their cost cuts were substantial and that helped preserve profitability," he tells Minyanville. "But, at the end of the day, the bottom line is about the top line, and the top line shows no signs of life."

Corbett adds, "Gannett still faces stiff headwinds, and it's not just cyclical. The secular forces reshaping the media environment are very much at play here. Cost cutting in the face of persistently declining revenues is a survival tactic. It is not a buy signal."

Where do technicians see the stock headed from here?

For that insight, we checked in with Rod David, who publishes his setups intraday on a blog at

Here is what David wrote to us in an email:

"Its RSI [relative strength index] is probing lower and lower highs, reflecting less sponsorship for the rally. And the rally's current test of 13.75-14.00 fulfills to important swing targets that extend from this summer's consolidation."

David added, "This is not a sell signal, and the rally could extend if new sponsorship arrives to make this inflection point break higher. Otherwise, almost any hesitation here -- and there's been a week's worth already -- would become increasingly vulnerable to dropping back into the gap at $10."

We also asked Michael Paulenoff, author of, for his two cents.

He reminds us that, from a multi-year technical perspective, Gannett peaked above $90 in April 2004, and plunged relentlessly to $1.91.

The current rally represents a recovery rally, period, he says. While he believes that Gannett could climb to $20, the larger dominant downtrend suggests strongly that, thereafter, Gannett will have to revisit $2 to $5.
No positions in stocks mentioned.
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