Meredith Corporation (MDP) is an American media company based in Des Moines, Iowa. As of Dec 2021, it is now called Dotdash Meredith.
I am bearish on Meredith as its valuation looks stretched relative to historical valuation multiples, the growth outlook is very weak, and Wall Street analysts are not optimistic about the stock either.
Strengths
Meredith was founded in 1902 and owned magazines, TV stations, websites, and radio stations until different companies acquired it in 2021. It had a readership of more than 120 million on its publications and paid circulation of more than 40 million. The websites it ran had approximately 135 million unique visitors per month, and its broadcasts reached about 11% of US households.
Recent Results
For the first quarter of 2022, Meredith reported total revenue of $708.6 million, showing an increase of 2% compared to the same period last year. Net earnings stood at $24.8 million, and adjusted EBITDA was at $124.7 million, showing a decrease since the previous year of 41% and 13%, respectively.
The company’s digital revenue grew by about 24% to reach $200 million, with performance-driven mainly by growth in advertising revenue. Meanwhile, digital consumer revenue also increased by 24%.
On the other hand, magazine revenue showed a decline of 2%, falling to $305 million. Consumer-related revenue, which accounts for about two-thirds of the magazine segment’s total revenue, grew by 6%, whereas advertising revenue declined.
The Local Media Group segment showed a decline in revenue by about $209 million.
The decline in net earnings can be attributed to a special charge of $17 million related to transaction costs. The change in revenue mix suggests that the decline in magazine advertising was a result of stronger digital performance.
The company had free cash flows of $35 million, compared to the previous year’s $70 million.
In this quarter, Meredith completed a number of transactions with companies like Gray Television and IAC’s Dotdash, where these two companies acquired the Local Media Group segment and the digital and magazine segments, respectively.
Valuation Metrics
MDP stock looks richly valued at the moment as its forward enterprise-value-to-EBITDA ratio is currently 11.37x compared to its five-year average of 8.31x. In addition, its forward price-to-normalized-earnings ratio is presently 12.30x compared to its five-year average of 10.80x.
On top of that, revenue is expected to decline by single digits over the next few years. Its EBITDA is expected to decrease by about a third over the next two years, and normalized net income is expected to decline by about 15% over the next few years.
Wall Street’s Take
Turning to Wall Street, Meredith has a Hold consensus rating, based on two Holds assigned in the past three months. The average Meredith price target of $59 implies 0.12% downside potential.
Summary and Conclusion
Meredith is facing some growth headwinds and is also overpriced based on historical valuation multiples. On top of that, Wall Street analysts take a neutral stance on the stock here, and the consensus price target implies that the stock should remain flat over the next year.
As a result, there is very little about the company or stock to inspire investors to add shares here. Therefore, investors might want to wait for a meaningful pullback in the share price that would create a discount to historical valuation multiples and the consensus price target.
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Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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