Meredith Corporation: "Time" for a Magazine Turnaround?

01/30/2020 5:00 am EST

Focus: CONSUMER

George Putnam

Editor, The Turnaround Letter

Meredith Corporation (MDP) is the nation’s largest publisher of print and digital magazines; complementing these publications, the company owns a portfolio of 17 local TV stations, notes George Putnam, editor of The Turnaround Letter.

Founded in 1902 by Edwin Meredith with his Successful Farming magazine, the company now has 42 million paid subscribers of its print and digital publications and 30 million viewers of its local television stations.

The company powerhouse titles include People, Travel + Leisure and Martha Stewart Living in January 2018, Meredith acquired magazine publisher Time, Inc, for $2.8 billion in an all-cash deal.

While the S&P500 rose over 50% in the five years through mid-2019, Meredith remained unchanged. Since then, the market has increased another 10% while Meredith’s shares have dropped 37%, driven by its surprisingly weak guidance that fiscal 2020 EBITDA will be about 20% below consensus expectations.

Much of the problem is that the Time acquisition hasn’t delivered the anticipated advertising revenues as quickly as the company originally expected. Also, $50 million in new strategic investments, as well as other costs, will weigh on near-term profits.

The weak guidance further stoked investor worries that Meredith may be on the losing side of the battle for profitable media relevance, particularly as its print advertising revenues continue to decline.

Meredith’s somewhat elevated post-Time debt level, upcoming negotiations with television networks and cable service providers, and changes in their magazine portfolio like the closing of iconic Family Circle, only add to investor concerns. The market appears to be turning the page on Meredith.

Despite these investor concerns, Meredith appears well-managed and well-positioned to remain a solidly profitable provider of relevant content to an attractive target market. The company reaches over 180 million Americans (more than Comcast or Disney) including 85 million millennial women, and is a top-10 digital destination with 150 million monthly unique viewers. 

It stays focused on the highly valuable American women audience, avoiding straying into other categories in the pursuit of growth. In eight of its twelve television markets, Meredith’s stations are ranked either #1 or #2.

Meredith produces generous free cash flow, helped by its low capital spending requirements. The company’s top two priorities for this cash flow are to repay roughly $800 million more in debt and fund its well-covered and recently increased dividend. 

Meredith has already repaid $825 million of Time acquisition debt, partly with proceeds from asset sales, leaving its $2.4 billion in total debt at a manageable 3.3x EBITDA. High-margin political ad revenues likely coming in calendar 2020 would fund an extra one-time $100 million+ paydown.

Meredith shares trade at a discounted 6.8x forward EBITDA multiple. Its strong market position, attention to tactical and strategic changes to maintain its relevancy, solid financials and attractive 7.0% dividend yield make for a compelling value stock.

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