Revising NYT Price To $10.85

+4.06%
Upside
43.27
Market
45.02
Trefis
NYT: New York Times logo
NYT
New York Times

We recently upgraded our price estimate for The New York Times Company (NYSE:NYT) from $8.33 to $10.85, based on the expected improvement in the company’s financial results stemming from increase in weekly price of its print subscription and growth in the number of digital subscribers. Furthermore, post the sale of New England media group (NEMG) that took place in the third quarter of fiscal year 2013 and completed at the end of Q4, the company has restated its balance sheet that reflects a decline in pension and post retirement benefit obligations. We expect this to positively impact the longterm liabilities of the company, which will augur well for it’s valuation. In this note, we will discuss factors driving our price revision.

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Stronger Financial Position after Reduction of Pension Obligation

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The company, in its 10-k and latest 10-Q, reported a lower dollar amount for its pension and post retirement benefit obligation. While pension benefit obligation declined by 30% sequentially, post retirement benefit liability declined by 15%. As a result, the over liabilities of the company declined by 50% approximately. This has translated into an estimated $1.40 per share increase in our stock price estimate for the company.

Growth In Revenues To Impact Stock Valuation

NYT’s core business has held on to its market share and its circulation revenue has grown. Furthermore, NYT was able to increase the subscription price for its circulation in 2014, due to the strength of its brand  and reach across different media, i.e., print and digital. However, NEMG’s declining price, market share and revenue was eroding NYT’s revenue growth. With the sale of the NEMG, we expect NYT to post growth in its revenues in the future. Considering the high operating leverage of the company, where in each incremental sale contributes more to the profitability of the company, we anticipate NYT’s cash flow to improve in the future.

Impact of SG&A Expense On Valuation

The SG&A cost increased in the first nine months of fiscal year 2014 due to higher compensation expense related to new initiatives, and one time pension settlement charge in connection with a one-time lump sum payment offer to certain former employees. While we expect SG&A expense to rise in dollar terms, we expect pension obligation liability to positively impact SG&A expense in the future as the cost associated with servicing higher benefit obligations will decline, and the SG&A Expenses as percent of revenue will remain constant at 44%.

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