Icahn's Involvement in Gannett (GCI) Could Lead to Further Value Realization, FBR Capital Says

FBR Capital analyst William Bird weighed in on Gannett (NYSE: GCI) amid the 13D disclosure after the close that Carl Icahn took a 6.6% stake as of August 4, a day prior to GCI’s announced separation of publishing and TV/Digital.

"While GCI has already gone into motion on separation plans, we believe Mr. Icahn’s involvement likely dials up the odds of further value realization," Bird said.

The analyst sees at least six additional ways to drive incremental value, not currently in estimates: (1) RE monetization (worth a potential $2–$3/share); (2) the potential for accretive TV deals (more likely post close); (3) the potential for a publishing tax inversion (i.e., potential for a ~21% tax rate versus a current 32%–33%); (4) the potential for a publishing merger to take out morefixed costs; (5) putting a high dividend on publishing, enabling it to trade on yield and a high EBITDA multiple—at a 45% payout and at a 4.5% yield, publishing could trade at 6.5x EBITDA, and we do not believe publishing plans for acquisitions preclude paying a healthy dividend, particularly given plans to spin publishing without debt; and (6) the potential for spin 2.0 of GCI’s digital businesses, which will have pro forma revenue of ~$1.3B and growing solid double digits. While adding leverage is typically a part of the activist playbook, GCI’s TV business will be levered at ~4x post deal and we are skeptical of GCI’s willingness to push leverage much higher.

The firm maintained an Outperform rating and price target of $40.00

For an analyst ratings summary and ratings history on Gannett click here. For more ratings news on Gannett click here.

Shares of Gannett closed at $34.05 yesterday.

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