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Lee Enterprise Company and Valuation Ratios in the Publication Industry

The publication industry has always represented a prime example of a competitive industry.  New innovations are easily observed and imitated, start-up costs are generally quite high and the entry and exit of new players is frequent.  2020 represented a particularly turbulent year for the industry. 

The Newspaper Publishing industry, historically the primary vehicle for American journalism, has struggled in recent years to adapt its print-focused operations to a changing media landscape. The industry, which excludes online-only publications, remains reliant on its print products for revenue and has declined rapidly as advertisers have shifted their budgets to digital platforms. In a relatively short period, external competition has risen exponentially. As smartphone adoption has surged over the past five years, digital content producers have siphoned readers and advertising revenue from industry publications. Although readership has grown through online editions, it has not been enough to offset the loss of more-valuable print subscribers. Recent market data analyses show that newspaper publishing revenue in the United States reached approximately 26.5 billion U.S. dollars in 2019. Some 15 billion dollars out of that amount was generated by advertising. All in all, newspaper revenue in the country is forecast to decrease to roughly 21 billion U.S. dollars by the end of 2024.

Lee Enterprises, Incorporated (NYSE: LEE), a leading provider of high quality, trusted, local news and information, and a major platform for advertising in 77 markets, has scheduled an audio webcast and conference call for Thursday, December 10, 2020, at 9 a.m. Central Time. Lee plans to issue a news release before market open that day with preliminary results for its fourth fiscal quarter ended September 27, 2020. (GLOBE NEWSWIRE)

At the time of the news release, Lee stock was trading at $0.84 which resulted in valuation multiples that were the lowest among its peer group.

The stock is likely performing poorly today as LEE management failed to provide any 1st quarter guidance even though they know the results for the first two months. My guess is the beginning of FY21 is off to a poor start.

As the decision hinged on the value of the Lee Enterprise, Alden Capital made an offer to buy out Tribune Publishing at $14.25/share for $520M. They value this company at an EV/EBITDA of 7.8x based on $80M of trailing EBITDA.

  1. The shares of Lee Company are currently trading at an EBITDA multiple that is at the bottom of its peer group.  Is EBITDA multiple appropriate for Lee?  If not, what multiple do you think is justified?  What is the implied share price that corresponds to that multiple?
  2. The table below shows the multiples for several firms in the newspaper publishing industry. What is an appropriate multiple to estimate price per share?
  3. The table below shows multiples for several firms in the newspaper publishing industry. Which of the following ratios would most likely be the most reliable in determining the stock price of a comparable firm? Explain in detail.

a. P/E

b.  Price/Book

c. Price/Sales

d. Enterprise Value/Revenue

e.  Enterprise Value/EBITDA

Publisher NameMarket CapitalizationEnterprise ValueTrailing P/EForward P/EPrice/ BookPrice/ SalesEnterprise Value/ RevenueEnterprise Value/ EBITDA
Lee Enterprise (Lee)48.95M639.71MN/AN/AN/A0.093.3424.29
Meredith Corporation (MDP)596.63M3.95BN/A6.631.540.215.728.78
Gannett Co., Inc. GCI7.12B6.63B50.9442.025.824.0315.53113.5
The E.W. Scripps Company (SSP)933.50M2.91BN/A21.61.080.585.921.66
The Interpublic Group of Companies, Inc. (IPG)6.50B10.98B14.379.632.650.675.1734.94
News Corporation (NWSA)8.27B9.29BN/A51.811.090.924.3934.67
Omnicom Group Inc. (OMC)10.75B14.36B11.549.064.450.774.4825.55
Average (excluding Lee)  25.6223.462.771.206.8643.18
Maximum (excluding Lee)  50.9451.815.824.0315.53113.5
Minimum (excluding Lee)  11.546.631.080.214.3921.66

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