UPDATE: Benchmark Company Upgrades R.R. Donnelley & Sons on Improving Outlook Enhanced by CGX Acquisition

In a report published Monday, Benchmark Company analyst Edward J. Atorino upgraded the rating on R.R. Donnelley & Sons Co. (NASDAQ: RRD) from Hold to Buy, and raised the price target from $19.00 to $21.00.

In the report, Benchmark Company noted, “We have a very favorable view of RR Donnelley's (RRD) proposed acquisition of Consolidated Graphics (CGX-Not Rated) for $34.44 per share plus 1.65 shares of RRD for each share of CGX and the assumption of $98 million in CGX debt. Based on today's price of RRD, the purchase price would be $715 million, or $73 per share of CGX. The acquisition is expected to close in the first quarter of 2014. This would amount to 6x consensus' FY14 EBITDA. Consolidated Graphics product line will expand many of Donnelley's traditional print services as well as digital and commercial printing, fulfillment and mailing services, print management and ecommerce capabilities and other services. With its 70 plants in local markets across 26 states, Consolidated Graphics serves primarily local customers, and could help Donnelley move into these markets. Also, the addition of Consolidated Graphics will reduce Donnelley's exposure to declining product lines such as Books and Directories, Magazines, Catalogs and Retail Inserts, accounting for 28% of total sales in 2012 to an estimated 26% on a proforma basis. We believe Consolidated Graphics may also improve Donnelley's revenue performance. Donnelley's revenues have declined from $10.6 billion in 2010 to $10.2 billion in 2012 while CGX's sales have risen from $991 million to $1.05 billion, a 5% increase over the comparable period. CGX is also expected to add to EPS and EBITDA. At 4.8x 2014E proforma EV/EBITDA and with a 6% yield, we think shares look attractive and are raising our rating from Hold to Buy.”

R.R. Donnelley & Sons closed on Friday at $17.31.