Shares of the large publisher Gannett(NYSE: GCI) zoomed 18% higher this morning after Citigroup analyst Jason Bazinet placed the stock on a "90-day positive catalyst watch" and upgraded his rating to neutral. Bazinet believes the U.S. Department of Justice's current lawsuit against Alphabet's Google could have positive ramifications for Gannett.
Eying a positive outcome
Gannett is the country's largest newspaper and digital publisher and owns several big media brands, such as USA Today. In 2019, New Media Investment Group, another large publisher, acquired Gannett but continued operating under the Gannett brand. The acquisition required the company to take on a massive amount of debt. Since then, it's been an uphill battle as the print newspaper business has continued to experience disruption.
This year, however, shares have popped 120% as the company has shown promising execution on its digital transformation. Digital revenues now comprise 44% of total revenue, and management believes that number will reach 50% by next year. The company also has a strong digital marketing solutions business with strong customer retention and average revenue per user (ARPU). Between 2019 and the second quarter of 2024, Gannett has lowered its debt burden from roughly $1.76 billion to $1.09 billion.
However, investors view a pending lawsuit against Google as a potential major catalyst. The DOJ alleges Google has monopolized search through anti-competition tactics.
In a separate case, Gannett alleges that news publishers have not experienced ad sales growth because of Google's monopoly over the tools and software that publishers use to buy and sell advertisements. Bazinet, in his note, said he believes a positive outcome in the DOJ's case is likely, which would bode well for Gannett's case.
Lots of potential upside
Legendary value investor Bill Miller, a shareholder in Gannett, has previously said that he thinks a win for Gannett, in this case, could result in more than a $1 billion payout. That would wipe out all of Gannett's debt. But even if a win resulted in a few hundred million in damages, that would still dramatically change the company's balance sheet.
I would also point out that since I began accumulating shares of Gannett in 2020, Bazinet has issued a sell rating on Gannett six times, so to finally see his sentiment start to improve in recent months is no small feat. I think improving fundamentals will continue to gradually push Gannett's stock higher, while a big payout from the lawsuit would dramatically accelerate the company's transformation and stock price.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bram Berkowitz has positions in Gannett and Citigroup. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
