Report Card: William Drewry

William Drewry Credit Suisse First Boston
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1st Place Publishing and Printing

Bio

B.A., Old Dominion University. Drewry became a Credit Suisse First Boston analyst when that firm acquired Donaldson Lufkin & Jenrette in the fall of 2000. He had joined DLJ in 1998. Before that, he held a similar position at PaineWebber, while beginning his research career at Kidder Peabody in 1992.

Industry Outlook and Style

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Unlike the bearish consensus, William Drewry holds that the equities of the newspaper companies are in for a healthy uptick this year. His reasons are threefold.

First, whereas most analysts are taking a short-term view of the economy, worrying about prospects for recession, Drewry is lining up with institutional investors who are looking beyond the current downturn and basing their decisions on an economic rebound. "The economy will regain its footing over the course of this year," he says. "We think newspaper fundamentals will show improvement, quarter by quarter, over the next four quarters. And earnings growth is what historically drives these stocks up."

Second, the CSFB analyst pooh-poohs the Street's bearish contention that the Internet is a major competitive threat to print media. "That concern has proved to be unfounded," Drewry says. "Newspaper companies have emerged with strong local Internet operations, and those have not cannibalized the print operations but rather have enhanced profitability. If anything, the Web operations have brought in a new audience and incremental revenues. And the print side has proved to be the stronger of the two players."

Third, Drewry describes himself as "very bullish" on coming industry consolidation, which will be driven by the Federal Communications Commission's likely move to deregulate cross-ownership rules. Such deregulation would free newspapers to own other media outlets, such as TV and radio, in the same local market.

For these reasons, he envisions earnings growth rates increasing year over year. "Already," Drewry notes, "we've seen unexpected earnings growth in the fourth quarter of 2000, which was ahead of Street expectations, and we've seen the stocks respond to that growth by performing well over the past six months."

Drewry selects three stocks as winners in the current climate: Gannett (GCI), the New York Times Co.(NYT) and E.W. Scripps (SSP). All of them are driven by their newspaper operations -- which account for 88% of Gannett's revenue, 90% of the New York Times Co.'s revenue and 55% of Scripps' revenue, according to Drewry.

Gannett, he says, "is among the best-managed companies in the industry and is a consistent earnings grower." Drewry is counting on Gannett having double-digit growth for the seventh consecutive year. He estimates 2001 earnings-per-share of $3.95, up 9% from 2000's $3.63. "And that's a conservative projection," the analyst adds.

The Times, like Gannett, has a particularly strong management team and has had especially strong growth, both top-line and bottom-line, over the past five years, according to Drewry. "Top-line growth is a little slower now, as the company goes up against very tough year-over-year comparisons, but it will pick up as the year progresses," he says. EPS could climb from $2.10 in 2000 to $2.31 this year, Drewry says, a possibility that causes him to set a 12-month price target of $60 to $65 on the $42 stock.

Drewry's rationale for selecting E.W. Scripps is that its strong cable networks have substantial growth potential in revenue and profits. Also, its Denver-based Rocky Mountain News, which is Scripps' largest newspaper, entered into a joint-operating agreement in January with its direct competitor, The Denver Post, which will cause "a big upswing in profitability," he says. And finally, "long-term opportunities in its Scripps Networks division are significant." On these bases, Scripps' EPS could zip from $2.20 last year to $2.60 this year, an 18% gain, according to Drewry. He has set a 12-to-18-month target price on the stock of $78. (CSFB has no investment banking relationships with any of the companies mentioned.)

Stock Pick

Favorite stock for next 12 months: Gannett
12-month price target: $90
Comment:
"I've had a buy on this stock for more than a year. In the past six months alone, it has climbed from $48 to $65. Here's what I see and what I think investors see behind this stock: We see a company with strong properties -- that is, valuable, profitable, high-margin products in both the newspaper and TV industries -- as well as geographic diversity, opportunities afforded by recent acquisitions, and one of the best national newspapers in terms of revenue and profit growth in its USA Today."


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Which stock do you like best? Drewry: Gannett Fine: Scripps

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