What is GCI's Intrinsic value?

Gannett Co Inc (GCI) Intrinsic Value Analysis

Executive Summary

As of May 25, 2025, Gannett Co Inc's estimated intrinsic value ranges from $3.56 to $23.90 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $11.34 +231.6%
Discounted Cash Flow (5Y) $10.05 +193.8%
Dividend Discount Model (Multi-Stage) $3.56 +4.2%
Dividend Discount Model (Stable) $12.51 +265.8%
Earnings Power Value $23.90 +598.8%

Is Gannett Co Inc (GCI) undervalued or overvalued?

With the current market price at $3.42, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Gannett Co Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.46 0.7
Cost of equity 6.0% 8.8%
Cost of debt 7.4% 15.6%
Tax rate 26.2% 27.0%
Debt/Equity ratio 2.16 2.16
After-tax WACC 5.6% 10.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,509 (FY12-2024) to $2,762 (FY12-2034)
  • Net profit margin expansion from -1% to 2%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $10 $2,394M 82.4%
10-Year Growth $11 $2,583M 66.3%
5-Year EBITDA $2 $1,180M 64.4%
10-Year EBITDA $4 $1,538M 43.4%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 7.4%
  • Long-term growth rate: 3.5%
  • Fair value: $3.56 (4.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.8% (Low) to 6.0% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $4 to $21
  • Selected fair value: $12.51 (265.8% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $324M
Discount Rate (WACC) 10.6% - 5.6%
Enterprise Value $3,062M - $5,782M
Net Debt $922M
Equity Value $2,140M - $4,860M
Outstanding Shares 146M
Fair Value $15 - $33
Selected Fair Value $23.90

Key Financial Metrics

Metric Value
Market Capitalization $501M
Enterprise Value $1423M
Trailing P/E 9.80
Forward P/E 9.80
Trailing EV/EBITDA 6.30
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 2.16

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $3.40
Discounted Cash Flow (5Y) 25% $2.51
Dividend Discount Model (Multi-Stage) 20% $0.71
Dividend Discount Model (Stable) 15% $1.88
Earnings Power Value 10% $2.39
Weighted Average 100% $10.89

Investment Conclusion

Based on our comprehensive valuation analysis, Gannett Co Inc's weighted average intrinsic value is $10.89, which is approximately 218.5% above the current market price of $3.42.

Key investment considerations:

  • Strong projected earnings growth (-1% to 2% margin)
  • Consistent cash flow generation

Given these factors, we believe Gannett Co Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.