As reported in the news in the WS Journal,the Company Is Worth About $700 a Share, 20% Above the Current Price. Washington Post Co.’s WPO -0.90% recent move to sell its flagship newspaper to Amazon.com CEO Jeff Bezos for $250 million signals a more investor-friendly approach by the low-profile company.
The deal surprised Wall Street, where the widespread view was the controlling Graham family was too emotionally attached to the newspaper to part with it. The paper operated at a slight profit in recent years before restructuring charges.
In disposing of its prized newspaper asset, which has been under family control for 80 years, the company showed it may be open to further asset dispositions or perhaps even an outright sale of the company.
A logical buyer for Post Co. is Berkshire Hathaway, BRKB 0.00% which has been a large Post shareholder for 40 years. Berkshire Hathaway’s CEO, Warren Buffett, was a longtime Post director before retiring in 2011, and he is close to Post CEO Don Graham.
The company’s market value of $4.3 billion makes it very digestible for Berkshire, whose market capitalization is almost $300 billion. Even without a sale, the company, which now plans a name change, looks appealing at the recent share price of about $570. Barron’s estimates that the company’s asset value is around $700 a share, roughly 20% above the current price.
Our estimate is in line with that of independent research analyst Craig Huber, who has covered the company for years, as well as three investors familiar with the company. The high absolute price on Post shares reflects the Graham family’s unwillingness to split the stock.
Post owns three main assets: a cable-TV business with nearly 600,000 basic subscribers, a lucrative group of six broadcast TV stations and Kaplan, an education business that includes an online university, campus-based degree programs and significant operations outside the U.S.
Cable and broadcast TV are both hot areas with investors. The strength in those sectors of the stock market probably accounts for the 60% gain in Post’s stock price this year.
Post also has an excellent balance sheet with estimated net cash and investments (after subtracting debt) of about $600 million following the Post newspaper sale. Unlike many other newspaper publishers, the Post has an overfunded pension plan.
Barron’s estimates the total value of Post Co. at $5.1 billion. Investors tend to value Post based on its net asset value rather than reported earnings mostly because profits at Kaplan have been depressed.
The company’s operating profits from continuing operations were about $7 a share in the first half. Post has been an active buyer of its stock in the past few years.
Post now amounts to a media and education conglomerate with a strong balance sheet. This could lead to nice returns for investors whether the company remains independent or not.
—Andrew Baryis an associate editor for Barron’s. For more stories, see barrons.com.