I'd Rather Own Gannett Than Facebook

NEW YORK ( TheStreet) -- Still relatively unnoticed and under-appreciated, shares of Gannett ( GCI) hit a 52-week high Tuesday, closing at $17. That's the first close above $17 since February 2011 for this company, which many still see as a dinosaur.

It also marks the continuation of Gannett's struggle for relevance in the eyes of investors since it looked like it might implode in early 2009.

At that time, its shares were changing hands for less than two bucks. Advertising was in a deep slump, amid the recession we were struggling through, and the company was burdened with debt to the tune of $3.8 billion. No one wanted to own a newspaper company.

GCI Chart GCI data by YCharts

But Gannett is more than that, owning nearly two dozen television stations and a digital unit that, combined, generated more than 60% of last quarter's operating income.

The company wisely cleaned up its balance sheet and paid down debt, which now stands at just under $1.7 billion. The quarterly dividend, which had been cut to 4 cents from 40 cents in early 2009, has been raised back to 20 cents, for a solid 4.9% yield.

Given the amount of free cash flow Gannett has been generating and its rather low 33% payout ratio, there may be room to increase that dividend further. The company has also been buying back stock.

GCI Free Cash Flow Chart GCI Free Cash Flow data by YCharts

Gannett has been living up to its underdog reputation by routinely exceeding consensus earnings estimates most quarters in the past few years. The analyst community, for the most part, has remained somewhat skeptical.

But when a company continues to generate significant free cash flow, increases its dividend and exceeds expectations, it's natural that the stock price will ultimately head higher. Still, Gannett trades for less than 8 times consensus estimates for 2013, and the dividend yield is hard to ignore. This should also put a floor under the stock price, and, if the company does have the wherewithal to raise it farther, that floor should also rise.

GCI Dividend Chart GCI Dividend data by YCharts

Gannett may be a boring story to many. It certainly does not have the star power of Facebook ( FB), or generate anywhere the level of interest. But I'd rather own Gannett.

Fellow TheStreet.com columnist Richard Saintvilus recently made the case that Facebook might ultimately be a $600 stock in 10 years, and if he's right, more power to him. That's a bold call.

By my math, that would put Facebook's market cap at nearly $1.3 trillion in ten years, assuming current share count. To get to a 40 P/E ratio would imply earnings of $32.5 billion. To get to the company's current price to sales ratio, which is already a stretch at 9.62, would imply revenue of more than $135 billion.

As a value investor, that's very difficult for me to fathom. I see Facebook as an interesting social media tool, but one that will ultimately face user burnout (count me in here), and competition from the next best thing. I don't see where all of the revenue will come from, either.

I'd rather continue to own the dinosaur, the "newspaper" company, which is much more than that, the one that yields nearly 5% and continues to generate nice amounts of free cash flow. It's not exciting, but sometimes excitement is over-rated -- and you pay too much for it.

At the time of publication, the author was long GCI.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.