The Washington Post Company (NYSE:WPO)

Print newspaper is a sieve for earnings, and now that online ad revenue is on the decline there is no floor to this stock except liquidation.

If I had to pick one company to short, it might be the WPO. The newspaper division isn't going anywhere and counting on Kaplan, which has been dogged by controversy surrounding expensive classes and poor curriculum, is not sustainable.

http://www.fool.com/investing/general/2011/11/18/this-industry-has-a-failing-report-card.aspx

This piece is about WPO's Kaplan subsidiary; I'm not a fan of the for-profit education segment. However, I can't say I'm bullish on the newspaper industry either, given serious disruption and growth challenges. Thus, WPO is also a thumbs down for both reasons.

This stock is undervalued and could be ready for a very large gain. Unlike small cap stocks this stock is not speculation but real investment undervalued by assets and just isn't taken seriously very often. It has all the signs of a healthy company and could make you a lot of money.

PEG is about .5 -- they call that a margin of safety & a recipie for a double --

http://www.fool.com/investing/value/2011/05/02/5-cheap-stocks-in-a-pricey-market.aspx?source=ihpsitth0000001

nothing but net

This stock will Underperform due to the fact between these guys and Kaplan University are going to be found guilty for taking money that is not theirs and the taxpayers are going to pay the loans of defaulted students. Which these students are pushed into going to school there by moral durres and the sounds of a trusting (evil) admissions advisor. I know from experience and from my group members.

Too many people view Washington Post as "old media". Quite the contrary; Washington Post Company owns many different assets in media, cable, and for-profit education and has been raking in impressive cash flow numbers over the years.

Moreover, the death of "old media" may be a long-term boon to WaPo --- the shift to online news has allowed a smaller number of highly recognized news organizations to be profitable, but has left the vast majority of American newspapers on the verge of bankruptcy. Washington Post is in the former group; not the latter. As "old media" dies off, Washington Post gains more "share". Short-term, the newspaper business seems like a bad one. Long-term, Washington Post isn't really a "newspaper", so much as an International press organization.

Based on my calculations, I'd suggest that even a conservative valuation of WPO should put it around $500/share. More realistically, I think it's worth between $700 - $1000/share and I'd peg $800 as my valuation. This wasn't a very thorough valuation, mind you, but it'll do for purposes of CAPS.

An added benefit here is that Warren Buffett owns over 20% of the company and could potentially bring it fully under the Berkshire umbrella.

I'd also recommend TMFDeej's pitch on the company, as well as The Lonely Value Investor's piece:

TMFDeej: http://caps.fool.com/Pitch/WPO/5135323/im-no-fan-of-newspapers-nor-of.aspx
Lonely Value Investor: http://seekingalpha.com/article/256094-the-washington-post-buffett-s-next-target

The broadcast and cable businesses generate stable cash flows with some growth. Value those cash flows at 5-6x, assume the Post is worth negative value (but greater than -$250MM) and the Kaplan business is basically being handed to you for free or near free. For profit post secondary education has very real troubles to work through and some of this will have a negative impact on business models, but WPO is the #2 player behind Apollo and will not go away. That business is worth something. If you apply the valuation metrics applied to even the worst of the worst in the space (eg, Corinthian?), this stock is undervalued by 20-30%. Apply the industry mean cash flow multiple to Kaplans cash flows, and WPO looks like it is trading at a 40-60% discount to intrinsic value.

No bright future ahead probably, but fear has compressed stock price far enough to get decent bounce back.

Greenthumbing the Washington Post based on TMFDeej's thoughtful "sum of parts" blog and pitch.

Mmm...media and education...

This account tracks the performance of the investment firm Ruane, Cunniff, and Goldfarb - the investment manager of Sequoia Fund.

There is less momentum, less volume, and less buying going on. We are in the last part of this rally.

Kaplan is the only star, and I expect that segment to be down considerably in the near term. An oversupply of unemployed professionals will not encourage more of today's graduating college students to attend graduate and professional schools, which will significantly impair growth in this division for the foreseeable future.
All other holdings are slumping media businesses.
Buy at your own peril.

You may giggle a bit when I propose a newspaper as a long but hear me out. The hidden gem within this portfolio of assets is their education division. It is currently more than 50% of revenues at $2,030mm in 2007 and 48% of revenues or $1684mm in 2006 up from $621mm in 2002 with 20mm in Profits. Also in 2002 while we were still recovering from a recession and the effects of 9/11 revenues increased 26%. So in the period of five years this segment has tripled revenues, septupled net income and it is highly resistant to slowdowns in the economy, not too shabby.

Well, what are we paying for this segment among its other parts? On a quarterly basis by revenues, 53% education (Kaplan), 17.5% newspapers (the Washington Post), 16.3% Cable Television (Cable One), 7% Television Broadcasting Various NBC and CBS affililates), and 5.4% Magazines (Newsweek & Foreign Policy - FP). Some of these are premier brands like Washington Post and Newsweek. While the market is currently valuing newspapers and magazines at a significant discount to the group like GCI, NWS, LEE, MNI and MDP and MEG part of this equation has to do with their leverage on an asset with declining revenues. While I do not disagree that the newspaper model is in decline, information is not. There is room going forward for newspapers as information sources, available through content aggregators for a fee. One might see the division of labor split between such properties as the WSJ, the NYT and the Washington Post each for their various specialties. But these legacy assets do tend to come with a cost and here that would be pension obligations and OPEBs. Annual servicing is not oppressive in this case but it is safe to assume that even WPO's conservative assumptions will be a bit long of the mark fo a year or two. Lets suggest that the tv, cable, newspaper and magazine assets should trade with the market (forecasting armageddon) at 6x, 10x, 3x and 5x EPS respectively. Solving for the implied value of the education business, given that the firm is conservatively financed with less than $100mm in net debt, and $500mm in loans, capitalized leases of approx. $500mm and 7x EBIT coverage, you come up with 10.25x ttm EPS. I would suggest that this is FAR too low for the premier business in its space. If you want your kids to have a shot at a top school this suite of services is a must. If you want to advance your career with advanced certifications their courses are a requirement. It is both procyclical and countercyclical . Let us also consider the absurd valuations being place on other education stocks APOL, ESI and STRA - these trade at 27.63x,23.97x and 41.70x ttm EPS respectively. A far saner approach to valuing Kaplan would be in the 17.5x EPS which suggests that WPO is currently 30% undervalued with extremely conservative numbers.

There are scenarios where the value locked up in WPO could be released. A spin-off of the Kaplan assets ala Scripps is possible but not likely. Over time this value is likely to be realized as Mr. Graham and Mr. Buffett reallocate capital from the businesses in decline to this wonderful asset. Free cash flow from the businesses will increase as capex for these business is diverted to the education segment. Sales of assets to ideal homes for these assets will reduce the drag that they impose on overall results. WPO already has significant online assets and is learning to imprve their effectiveness. In short, we are receiving a wonderful asset at a discounted price where the blended performance is set to improve substantially.

elevator down at the WPO

This is a stock that has legs. When it is up . . . it is up, and visa versa. This is a traders stock more than anything, but it holds very well in the long run.

ITS A BIG NEWSPAPER CO