As circulation numbers for newspapers continue to slide, so too do the stocks of major newspaper publishing companies.

Does

Washington Post

(WPO)

, which will report its third-quarter results on Friday, still fit in that newspaper category?

Shares of Washington Post, which are heavily owned by the Graham family, are down about 2.6% for 2006 so far.

And they're down 1.8% just in the last week after the Newspaper Association of America reported Monday that the company's namesake paper's circulation reach had declined 3.3% to 656,297 subscribers for the six-month period ending in September.

Average paid circulation for the industry fell 2.8% on weekdays and 3.4% on Sundays over that period.

With consumers migrating to the Internet for their information needs, and advertisers chasing behind them, the future for a number of major old-media conglomerates is looking bleak.

So far, that translates into bad returns for investors and increased attention from leveraged buyout mavens.

Washington Post, however, is careful to separate itself from the pack.

Despite its brand, which comes from the masthead of its venerable flagship newspaper, the company describes itself on its Web site as "a diversified media and education company."

To be sure, other publishing companies are seeking to diversify beyond newspapers, but Washington Post's revenue contributions from its education segment make up a significant percentage of its overall business.

For its second quarter, Washington Post reported an 8% gain in revenue thanks to its for-profit education division, Kaplan, which made up 42% of the revenue and was its most profitable business.

Last year, Kaplan was responsible for 40% of the company's operating revenue, up from 34% in 2004.

"In the years to come, Kaplan will become a bigger and bigger part of our total business," said Donald Graham, the company's chairman and CEO, in his annual letter to shareholders. "This will change our company."

His mother, Katharine Graham -- the company's former chairman and a pioneer for women in the boardrooms of corporate America -- bought Kaplan in the 1984 to diversify the company's holdings.

Now, the education business is being held up on Wall Street -- where growth potential means everything -- as the company's saving grace.

"The Washington Post is in the fortunate position of having used proceeds from its traditional assets, like the newspaper and its collection of TV stations, to fund higher growth initiatives, like Kaplan," says Morningstar analyst James Walden.

"Kaplan, especially with its higher-education businesses, is a very credible growth engine for the company. They've got brick-and-mortar institutions that are doing well, and they're getting a big boost from their online activities as well as their international expansion," he continues.

The Kaplan Test Prep and Admissions business prepares students for more than 80 standardized tests and provides private tutoring and one-on-one admissions guidance for school applicants.

The Kaplan Higher Education business runs in more than 70 campuses in the U.S. and abroad, and it has launched online programs through Kaplan University and Concord Law School.

Kaplan also provides professional training and partners with schools to provide tutoring services. Its SCORE! Education Centers provide after-school learning programs to children at 164 centers nationwide as well.

Since 2002, Kaplan University has added 10 degree programs; online enrollment has doubled each year since, while the unit's revenue has tripled over the same period.

"Given the increasing acceptance of online education, we expect that online-education enrollment will continue to grow, and that Kaplan University's financial results will grow in tandem," says Walden in a recent report.

He also notes that Kaplan now has over 50,000 students enrolled in 29 locations outside the U.S., and he expects that number to keep growing.

This month, the company announced that it extended its reach into China through a partnership with a Beijing-based English-language-training company, Beijing New Channel Education and Cultural Development Co.

It also acquired PMBR, a nationwide provider of test preparation for the multistate bar examination, and English-language instructor Aspect Education, which has 19 schools located in various countries.

Last month, it announced that Kaplan was teaming up with

Newsweek

, The Post's general-interest magazine, to offer an online M.B.A. program.

The newsweekly will help Kaplan provide students with case studies of current business topics, along with video and online presentations, chats and interviews.

Given all these investments, along with the cost of recent employee buyout offers at

The Washington Post

aimed at reducing the paper's headcount, the company may show lackluster results for its efforts in the third quarter on Friday.

Judging from recent disappointments from its publishing peers, like

Tribune

( TRB) and

The New York Times Company

(NYT) - Get Report

, the newspaper business only got worse in recent months.

But all the doom and gloom may translate into a cheap stock price for Washington Post.

Using Morningstar's discount cash-flow model, Walden values the company's stock at $1,000.

Currently, it's trading at around $738, a 35% discount.

Meanwhile, Walden is inclined to give The Post a premium due to the strong influence over management from its largest shareholder and director, the legendary investor Warren Buffett.

The Oracle of Omaha's investment vehicle,

Berkshire Hathaway

(BRK.A) - Get Report

, bought a stake in The Post in the 1970s, and the subsequent success of the investment became a major pillar of Berkshire's portfolio.

"Buffett has a huge influence on the Washington Post," says Walden. "The management there uses a lot of Buffett's principles."

For instance, Washington Post was expensing stock options on its income statement long before accounting standards required it.

Also, most companies would employ a stock-split at the high price levels of Washington Post shares, but Buffett has long contended that raising the number of shares outstanding and lowering the price of a stock with a split only encourages the sort of short-term, speculative investing practices that he is careful to avoid.

Taking the long-term view, Walden says the market conditions for newspapers is likely to improve over time as media outlets adjust to the technological transformations that are currently wreaking havoc in the industry.

The Washington Post

is one organization that should be particularly resilient.

"Given its unique position as the newspaper of record for the political scene in the nation's capital,

The Washington Post

is unlikely to lose its audience or its relevance," explains Walden.