The Washington Post Company (NYSE:WPO)

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

The only reason I gave it thumbs up was because I work there [sigh]...

Newspapers as a medium are dying. The business model that turned WPO into a fantastic stock in the 20th century is built off consumer insights that are no longer true. WPO must adapt to go on.

The sector of the company that has kept the stock afloat has been Kaplan, but Kaplan relies much on its tutoring operations, with tutoring being a historically-proven highly unreliable industry.

WPO is now trading twenty dollars or so above the half-billion dollar tender offer the company made to buy back shares - almost ten years ago! The convergence of two factors is responsible for the decline - the secular decliine of the newspaper business and the credit crunch fallout in education loans. The former has been a known quantity since the tender offer, the latter will pas. WPO's education unit is comparable to APOL. Using multiples from that co. and STRA, you get WPO's cable, newspaper, broadcast television and Newsweek and Slate magazines for free. And a rider on 300 million dollars worth of Berkshire shares. Company does well in election years.

Buffet stock, fair price, looking for bounce off lower trendline support

Purchase on dips!

Only because of their test prep. The paper is holding them back!

WPO is "fine tuning" its way to the next level with expanding demographics and adding more depth to its media business. Great time to outperform!

great divs!

I will trust Warren Buffet to help choose management and let them run. Companys printed media is slipping but cable/educational/on line is growing. They are positioning themselves towards a growing segment of the US population with Latin broadcasting and English language classes.

buffet and gates

Washington Post owns some great businesses including a career search engine and other publications, not to forget, the paper of the town, The Washington Post. This stock goes WAY up on any given day. Get in on the low low and watch this stock give some great returns. Whenever it goes down, it still jumps way up.

The Washington Post Company is a diversified media and education company. Its media operations consist of newspaper publishing (mainly The Washington Post), television broadcasting, magazine publishing (mainly Newsweek magazine), and the ownership and operation of cable television systems. The company’s Kaplan subsidiary provides a wide variety of educational services and contributes nearly 40% of revenues.

With the internet revolutionizing the media industry, more publishing companies are turning their attention towards their internet operations, with 12 to 15% of revenues expected to come from this area by 2010. The company has been performing well in their online operations with both overall and advertising revenues rising in 2006. However the publishing division revenues have been on the decline due to reduced advertising revenue at Washington Post and low circulation.

With the Hispanic population in America expected to double to 19.4 million in 2020 and a booming population of Hispanics in the treasured 18-to-35 demographic, the company might want to do a slight rethink of its target audience. It already operates El Tiempo Latino a free weekly Spanish language newspaper, which it acquired in 2004, aimed at the Hispanic population in 3 states.

The company has also sold off PostNewsweek Tech Media group in December, which was performing below par in 2006. On a positive note, the revenues from educational services represented by Kaplan Inc have witnessed a 20% increase in 2006. The company seems to be intent on expanding Kaplan with 6 acquisitions recently completed by this October. In the future they might want to concentrate more on online educational courses, as nearly 2 million students are enrolling for online courses each year and is well poised to see a growth of around 25% in the coming years. Increasing investments in the growing Kaplan (educational) segment is a good indicator that the company will outperform the market over the next one year.

Downward slide expected in the wake of more effective advertising vehicles.

All around great company. But dont take my word for it... Do your own DD.