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Revising NYT Price To $12

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We recently upgraded our price estimate for The New York Times Company from $9.64 to $12.01, based on the expected improvement in the company's financial results stemming from increase in weekly price of its print subscription and growth in the number of digital subscribers. Furthermore, post the sale of New England media group that took place in the third quarter of fiscal year 2013 and completed at the end of Q4, the company has been able to rein in its sales, general and administrative (SG&A) expenses. The company expects that cost reduction initiatives that were recently implemented across the company should allow it to maintain lower costs in 2015, relative to 2014 levels. In this note, we will discuss factors driving our price revision.

Click here to see our complete analysis of New York Times

Stable Market Share And Improving Margins

NYT's core business has held on to its market share and its circulation revenue has grown. Furthermore, NYT was able to increase the subscription price for its circulation in 2015, due to the strength of its brand and reach across different media, i.e., print and digital. Additionally, the company's gross margins improved as newsprint cost declined. Considering the high operating leverage of the company, where in each incremental sale contributes more to the profitability of the company, we anticipate NYT's gross profit and the cash flow to improve in the future.

SG&A Expense To Decline in 2015

The SG&A cost was high for fiscal year 2014 due to higher compensation expense related to new initiatives, and one time pension settlement charge in connection with a one-time lump sum payment offer to certain former employees. The company has stated that some of the initiatives it recently undertook will help it to maintain a lower SG&A cost for most of the fiscal year 2015. While we expect SG&A expense to rise in dollar terms by the end of our forecast period in 2021, we expect the SG&A Expenses as percent of revenue to decline to 44.5%. This has positively impacted our stock price estimate by $2.44.

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