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Don’t stop presses yet on Donnelley

An employee works binding machine an R.R. Donnelley plant MenashWis.  |  AP file photo

An employee works a binding machine at an R.R. Donnelley plant in Menasha, Wis. | AP file photo

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roeder report

David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: April 6, 2012 5:48PM



The written word isn’t dying. Just count your incoming emails and Facebook postings. The printed word, however, is going through a severe downsizing, so what are we to make of that Chicago-based company that lives off of it, R.R. Donnelley & Sons (RRD)?

The commercial printer, biggest in the United States, for years was one of those blue-chip stocks meant to sustain widows and orphans. More recently, it has acted like it needs charity itself.

At Friday’s close of 12.39, Donnelley has lost about a third of its value over the last year. So far in 2012, amid the upward march of the overall market, RRD shares have lost 12 percent.

And yet, the stock pays a big honking dividend that’s good for a yield of more than 8 percent. When investors go looking for yield, Donnelley shouts to be purchased.

For some companies, large yields are a distress sign, like the fat payouts that get people into junk bonds. There’s reason to be careful about Donnelley, as the company has lost money in four of the last five years. Its revenue has been flat to down since 2006.

But the losses are mostly due to steady downsizing. When it closes a plant, as it said it would do last week for an operation in Mendota, Ill., it records a charge. The company also plans to make about half its headquarters space at 111 S. Wacker available for sublease.

Call it a dinosaur if you want, but RRD still should generate about $500 million in free cash during 2012, said Standard & Poor’s analyst Jim Corridore. That’s more than enough to pay that dividend and to finance acquisitions.

Corridore believes RRD will continue to acquire smaller printing services firms and will benefit from the efficiencies. He has a buy recommendation on the stock and a $17 target on the share price.

Of the stocks in the S&P 500, Donnelley ranks near the highest in “short interest,” shares sold by people who expect it to decline. The price could rise if there’s a “short squeeze” and those investors must buy shares to cover their bets.

Donnelley is an old-economy company that’s become risky, but it could yet again print money.

MORNINGSTAR OUTLOOK: The year’s first quarter is now in the books to widespread applause. The S&P 500 is up about 12 percent year-to-date, which would make for a decent full-year performance. Morningstar analyst Heather Brilliant, in an update of her 2012 outlook, said undervalued stocks are harder to find, but still plentiful.

Energy and basic materials are the best sectors, Brilliant said. She suggested looking at companies in aluminum, steel and oil and gas equipment and services, all sectors trading at a fraction of Morningstar’s opinion of their fair value. Health care also looks attractive, she said.

A BUY TIP: Did someone just mention health care? Ycharts editor Stephane Fitch posted a piece saying that shares of Owens & Minor (OMI) look like a bargain regardless of what the U.S. Supreme Court does with Obamacare. OMI is a distributor of medical and surgical supplies that trades at a discount compared with rivals such as Cardinal Health (CAH) and AmerisourceBergen (ABC).

New money cold head into health care stocks after the Supreme Court ruling, and investors are liable to take notice of OMI, Fitch said.

MOUNTAIN GROWN: Bloomberg News detailed a fortuitous investment decision by Robert Stiller, chairman of Green Mountain Coffee Roasters (GMCR) that ought to draw attention from federal regulators. Stiller sold $66.3 million of his stock in Green Mountain just before its shares tumbled in response to news from Starbucks (SBUX). Starbucks said it had a competitor for Green Mountain’s single-serve K-cup brewer.

Green Mountain’s own filings said it had advance word of the Starbucks announcement, but it wouldn’t say how far in advance.

Stiller sold his shares in February and the big decline hit them on March 9. Had he sold after that date, he would have gotten $13.7 million less than he netted in February, Bloomberg said.

CME BLOTTER: It’s good to see that there’s still some life in the old trading floors. Exchange owner CME Group (CME) suspended Chicago Board of Trade member Mark Downs for 10 days and fined him $10,000 for “unbusinesslike physical contact with another, which was inappropriate for the trading floor, during regular trading hours.”

As opposed to, I guess, businesslike physical contact.

NEWS HEADLINE: “Home prices in the U.S.: a city-by-city breakdown.” Breakdown is the right word for it.

CLOSING QUOTE: “It will take well into 2014, [and maybe even 2015], for the housing recovery to resemble anything that could be considered normal. Even then, renters will play a much larger role in the market.” — Diane Swonk, chief economist, Mesirow Financial



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