R.R. Donnelley (RRD) Will Continue Generating Gobs of Cash, Even in Downturn - Barron's
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R.R. Donnelley & Sons (NYSE: RRD) shares are seeing some buying action Thursday following a bullish report out of Barron's.
Though many outlets are switching to digital formats, R.R. Donnelley still earns a heap of cash from labels, inserts, brochures, magazines, and more. Not only that, but it's international business -- accounting for about 25 percent of the top-line -- is on the rise.
Investors were initially scared following R.R. Donnelley trimming its outlook in January. But the company also pays out 26 cents per quarter, good for an annual yield north of 8 percent at its current trading price in the mid-$13 range.
Barron's was bullish on R.R. Donnelley continuing to generate gobs of free cash flow -- probably more than twice that amount needed to support its dividend -- amid larger pension obligations. For 2012, R.R. Donnelley expects to generate FCF of $500 million, with only $200 million of that going to dividend. One analyst made the point that investors would still outpace the market even if shares went nowhere and the dividend was maintained -- at least over the next few years.
Valuation is also light for R.R. Donnelley compared with historical levels. Enterprise value-to-EBITDA is at a 20 percent discount to its historical multiple of 6 times. Shares are also trading with a P/E of 7 times 2012 EPS expectations.
Total debt of about $3.9 billion (in part from acquisitions) is currently 3.1 times EBITDA. RRD is looking to reduce that number down to between 2.5 and 3.0 times EBITDA.
With the downturn in the economy came a few changes to R.R. Donnelley's business. Barron's notes direct mail, commercial print, and retail inserts may not make as strong of a rebound as previously hoped. Further, debt levels will still remain a constraint to the stock price without further reduction.
Though current valuation implies trouble ahead for the company, one analyst cited in the Barron's piece argues there will always be a need for printers, and R.R. Donnelley will be the "last man standing."
Shares are up 4.4 percent Thursday.
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Though many outlets are switching to digital formats, R.R. Donnelley still earns a heap of cash from labels, inserts, brochures, magazines, and more. Not only that, but it's international business -- accounting for about 25 percent of the top-line -- is on the rise.
Investors were initially scared following R.R. Donnelley trimming its outlook in January. But the company also pays out 26 cents per quarter, good for an annual yield north of 8 percent at its current trading price in the mid-$13 range.
Barron's was bullish on R.R. Donnelley continuing to generate gobs of free cash flow -- probably more than twice that amount needed to support its dividend -- amid larger pension obligations. For 2012, R.R. Donnelley expects to generate FCF of $500 million, with only $200 million of that going to dividend. One analyst made the point that investors would still outpace the market even if shares went nowhere and the dividend was maintained -- at least over the next few years.
Valuation is also light for R.R. Donnelley compared with historical levels. Enterprise value-to-EBITDA is at a 20 percent discount to its historical multiple of 6 times. Shares are also trading with a P/E of 7 times 2012 EPS expectations.
Total debt of about $3.9 billion (in part from acquisitions) is currently 3.1 times EBITDA. RRD is looking to reduce that number down to between 2.5 and 3.0 times EBITDA.
With the downturn in the economy came a few changes to R.R. Donnelley's business. Barron's notes direct mail, commercial print, and retail inserts may not make as strong of a rebound as previously hoped. Further, debt levels will still remain a constraint to the stock price without further reduction.
Though current valuation implies trouble ahead for the company, one analyst cited in the Barron's piece argues there will always be a need for printers, and R.R. Donnelley will be the "last man standing."
Shares are up 4.4 percent Thursday.
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