Gannett shares climb as Citi upgrades to Neutral, opens 90-day positive catalyst watch

A Citi analyst upgraded Gannett (GCI) to Neutral from Sell and opened a 90-day positive catalyst watch on the stock as they expect a positive result from the Department of Justice’s (DOJ) case against Google’s (GOOGL) ad tech business.

“We believe that a win would provide a lift in GCI’s equity, as it would be viewed as a harbinger of upside for GCI’s own case against Google (NASDAQ:GOOGL ),” analysts said in a note.

Gannett’s shares climbed over 4% in premarket trading Tuesday.

Beyond the Google-DOJ case, analysts see a couple of more potential positives for GCI shares over the next 24 months.

Notably, Gannett recently took on more debt to eliminate half of its convertible bonds, resulting in increased non-convertible debt. Management has hinted at the possibility of selling assets to reduce leverage, and analysts believe the sales multiples could surpass current expectations, which would enhance equity value.

Moreover, in the first half of 2024, Gannett made progress in slowing its revenue declines, and if this trend continues, the company could see near-flat revenue growth by late 2024 or early 2025.

“This may result in multiple expansions,” analysts noted.

On the flip side, analysts highlighted an economic slowdown as the primary risk for Gannett. In the last, particularly severe, recession, the company saw a nearly 20% decline in revenue. If the next recession leads to just a 4% drop in topline performance, analysts estimate that Gannett's equity could face a downside of almost $3.

In a nutshell, analysts suggest that in a bullish scenario, where there is no recession, a large settlement with Google, significant asset sales, and multiple expansion, Gannett's stock could surpass $12 per share.

However, in a bearish scenario involving a recession, no Google settlement, no asset sales, and no multiple expansion, they see “little equity value.”

“At the prevailing equity value – of just under $5 - we see risk-reward as balanced,” they emphasized.

Source: Investing.com