Imperial Capital Upgrades McClatchy (MNI) to Outperform; SOTP Worth Up to $5.10/Share

Imperial Capital upgraded McClatchy (NYSE: MNI) from In-Line to Outperform with a price target of $4.25 following Q3 results, reflecting a sum-of-the-parts analysis and a 20% free cash flow yield target.

Analyst Kevin Cohen said a more shareholder-centric posture, including the instatement of a dividend, appears achievable. They also believes McClatchy will avoid a "roll-up" strategy to create equity value, a positive in their view.

"With an expected $406mn net, after-tax proceeds figure from its recent asset sale along with respectable prospective “simple” free cash flow, one key “risk in our view is that management embarks on a “roll-up” strategy whereby it redeploys capital into purchasing print (or digital) assets at a multiple inside its prospective EV/EBITDA multiple to create “new” equity value, an undesirable outcome, in our view. Simply put, we are averse to “roll-up” stories and think at least two superior methods to create equity value exist for the company, namely debt reduction and the instatement of a regular common stock dividend. Based on the company’s recent financial posture, as seen in debt retirement and as elaborated upon at times during earnings calls, we believe
the risk of a “roll-up” is fairly low, although we would not rule out a bolt-on type acquisition in the digital arena.

In addition, continued newspaper industry consolidation and potentially improving multiples over time.

They estimate a sum-of-the-parts valuation range of $2.30-$5.10/share and think the likely continued presence of healthy free cash flow should largely insulate investors against the low-case scenario and we note the mid-case EBITDA multiple we assign to its stake in CareerBuilder of 10.5x reflects a ~20% discount to the valuation surfaced via the 10/1/14 divestiture of its Classified Ventures.

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

Shares of McClatchy closed at $3.17 yesterday.

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