Lee Enterprises (LEE)

While the earnings are declining, they do appear trustworthy. The accrual ratio measures the difference between cash-based earnings and accounting (accrual) based earnings. The closer to zero, the better. With the exception of a spike in 2005 related to the Pulitzer acquisition, Lee’s earnings quality has been high.

While most newspaper companies have been beaten up, none are a better value than Lee Corp. Lee is a well managed company and generates a good deal of free cash. In my opinion it is hard to lose. You are paid appx 8 to 10% in dividends to wait till the market rebuilds itself.

Although its valuation multiples and price performance resemble those of the other small firms, Lee is less heavily leveraged (a mere 3:1 debt/market cap ratio compared to 4:1 at McClatchy and 12:1 at Journal Register) and generates a significantly higher free cash flow yield than those firms.

While the earnings are declining, they do appear trustworthy. The accrual ratio measures the difference between cash-based earnings and accounting (accrual) based earnings. The closer to zero, the better. With the exception of a spike in 2005 related to the Pulitzer acquisition, Lee’s earnings quality has been high.

There doesn’t appear to be much near-term risk to the dividend due to its relatively small share of annual cash flows. Pension plan is under-funded by $75 million, but the annual required contributions are just a few million.