Gannett Inc. (GCI) is in a sector most investors have loved to hate in the last few years: media. But with a forward P/E of just 8.2, the stock has attractive value characteristics.

It is also a Zacks #1 Rank (strong buy) stock.

Newspapers, Magazines, Web Sites, Broadcasting

Gannett is best known as the publisher of USA TODAY, but it also operates newspaper and TV web sites and sites like CareerBuilder.com. In addition to publishing USA TODAY, it also publishes 82 daily U.S. newspapers and more than 650 magazines.

Gannett also operates 23 television stations in 13 markets. It operates a subsidiary, Newsquest, in the United Kingdom which operates 17 daily paid-for titles, more than 200 weekly newspapers as well as a network of web sites.

Gannett Surprised for the 4th Quarter in a Row

On Apr 16, Gannett reported first quarter results which beat the Zacks Consensus Estimate by 9 cents. Earnings per share were 50 cents compared to the Zacks Consensus of 41 cents.

While the company saw improvement, it still faced a difficult economic environment, especially in advertising, in the first quarter.

Revenue fell 4.1% to $1.3 billion compared to the year ago period. However, the company saw a turnaround in some segments, especially in its broadcasting unit. Broadcasting revenue rose 16.7% to $167.5 million with much of the gain attributed to Winter Olympic Games advertising revenue on its NBC affiliates.

Advertising is still struggling to revive, however. In the publishing segment, advertising revenue fell 7.9% compared to a year ago. Both the U.S. and UK advertising revenues were lower, by 8.5% and 8.7%, respectively.

Similarly, classified revenues also declined by 7.9% in the quarter with the UK falling 12.6% compared with 8.9% in the U.S. Real estate classifieds fell 15.5% in the quarter while employment classified revenue was still down 12%.

What’s doing well then?

Gannett is running a much more efficient business. It doubled its net income even as revenue fell and reduced its debt by $260 million in the quarter.

The company is optimistic that it is building upward momentum as it saw improving results quarter over quarter.

Analysts Raise Estimates

Given the results of the quarter, with the company beating the consensus yet again, analysts have been raising estimates for both the second quarter and the full year.

The second quarter Zacks Consensus Estimate rose 2 cents to 49 cents in the last week with 2 estimates moving higher.

The 2010 Zacks Consensus Estimate jumped 10 cents to $2.19 per share in the last week with 4 estimates moving higher. Analysts now expect EPS growth of 16.9% in 2010.

Value Fundamentals

Outside of its low P/E ratio, Gannett also has a low price-to-book ratio of 2.4, which is under the value parameter of 3.0. The company also has a solid 5-year average return on equity of 16.2%.

The company is still rewarding shareholders with a dividend yielding 0.9%. That is impressive given that many in the industry have abandoned their dividends and the industry average is zero.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

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