DOW JONES & CO. $34 (New York symbol DJ; Conservative Growth Portfolio, Consumer sector; WSSF Rating: Above average) publishes The Wall Street Journal and Barron’s magazine. It also owns several smaller publications, and provides newswire and specialized information services.
The company has suffered in this decade, like all publishers, from fiercer competition for ads. Its profits have stagnated in the past five years, although sales have risen from $1.56 billion in 2002 to a likely level of $1.9 billion or so this year. The stock now trades at 30.9 times its forecast 2006 profit of $1.10 a share. The $1.00 dividend yields 2.9%.
Dow Jones is doing a good job of controlling its costs, which gives it more cash to expand faster- growing businesses such as Internet sites. Its latest restructuring plan should save it $15 million a year, mainly by streamlining management and outsourcing more administrative functions.
To put this goal in context, Dow Jones earned $0.14 a share (total $11.4 million) before special items in the three months ended March 31, 2006, up 27.3% from $0.11 a share ($9.5 million) a year earlier. Revenue grew 9.7%, to $452.2 million from $412.1 million.
Dow Jones recently launched a weekend edition of The Wall Street Journal, as well as adding more color pages. That helped it attract new readers and advertisers. In fact, 60% of the advertisers in the weekend edition are new to the paper. This edition is still losing money (it cut first quarter earnings by $0.06 a share), but the company hopes to break even on it in 2007. Meanwhile, the company plans to shrink the physical size of The Wall Street Journal later this year, and this will cut its newsprint costs.
The strength of Dow Jones’ brands helps to attract readers to its online ventures, including a new Barron’s Online site. Its online advertising revenue rose 15% in the first quarter of 2006, but that was partly due to last year’s acquisition of MarketWatch.com.
Dow Jones recently paid $202 million to settle a longstanding dispute that grew out of a failed 1980s acquisition. It borrowed the money under its short-term credit arrangements. It will probably convert this to long-term debt, which would increase its debt-to-equity ratio, from 1.1 to roughly 2.0.
Dow Jones is a buy.