Citi Sees The Bear Case In New Media Investment Group As 'More Likely'

Citi downgraded New Media Investment Group Inc (NYSE: NEWM) to Sell from Neutral and hinted at a potential dividend risk by 2019.

Citi has lowered its rating citing the following four reasons:

"First, the pace of M&A has slowed dramatically in recent years, and we think the firm is unlikely to achieve $1B in M&A by year-end."

"Second, with a slower cadence of M&A, synergies will likely moderate, putting pressure on EBITDA."

"Third, top-line trends have not improved materially once investors account for tuck-ins and easier comps."

"Fourth, this suggests that New Media's dividend may be at risk by 2019. And, this could put pressure on the firm's multiple (which currently trades at a premium to the multiple New Media pays when it acquires firms)."

On the contrary, bulls see the company achieving $1 billion of M&A by year-end, additional synergies, organic revenues reaching stabilization by the fourth quarter and a robust, sustainable dividend. If New Media achieves all this, Citi believes the stock could reach $22 by 2018, suggesting $5 of upside.

Analyst Jason Bazinet said the current equity value suggests the Street is ascribing about 50 percent likelihood that New Media achieves all elements of the Bull case scenario.

"We view this as unlikely and see the Bear case as more likely than the Bull case. Applying an 80% probability to our bear case we arrive at a $13 price target, down from $17," Bazinet wrote in a note.

At the time of writing, shares of New Media fell 4.91 percent to $16.07.