RR Donnelley (RRD): Possibly the Last Cheap Stock in the Market

February 23, 2011
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It is only natural that the stock market, having doubled since the March 2009 low, would seem to be running a little short on bargains. And I have a sense, based on purely anecdotal observations, that optimism in the market has reached a local peak in that companies have been punished by the market for putting out respectable, even expectation-beating quarterly earnings. And, of course, then, something in Libya happens and hundreds of billions of dollars of paper wealth have to disappear.

But I have to take the position that whatever is going on in the broader markets, there must be a few bargains out there to go along with all the new overinflated short candidates. One such stock is RR Donnelley (RRD), the largest printer in the country. The printing industry, of course, is under economic pressure, as fewer people are interested in advertising and catalogues, and also under secular pressure from the decline in print directories and the rise of e-books (although the firm claims that their book printing volumes have not been affected by them yet). As a result, RR Donnelley’s sales and free cash flows have declined over a few years. But what has declined more is their share price, moving them into bargain territory. The company, whose debt position is sound and which is rolling up smaller printers in order to reduce what they call “overcapacity” in the sector, now offers a free cash flow yield of 13.3%, when its sales and free cash flow are showing signs of stabilizing. They also offer a generous dividend yield of 5.5%.

My full opinion of RR Donnelley may be found here.


I heartily recommend this company as a candidate for portfolio inclusion.

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