JPMorgan Buying New York Times Stock As More Consumers Buy Digital Subscriptions

New York Times Co (NYSE: NYT) is up nearly 24 percent year-to-date against a relatively flat S&P 500. JPMorgan thinks the outperformer has more room to run.

The Rating

Analysts Alexia Quadrani, Julia Yue and David Karnovsky upgraded the New York Times to Overweight and increased their price target from $25 to $27.

The Thesis

With the New York Times slightly down off its 10-year high, JPMorgan sees an entry point.

“With now six consecutive quarters of elevated digital subscriber growth, flattish churn and potential for improving ARPU, we believe this transformation toward a digital growth story will continue and likely accelerate,” the analysts wrote in a note.

As yet, New York Times has about 2.6 million digital-only subscribers, and digital circulation accounts for about 20 percent of total revenues — slightly above the formerly leading print ad line. JPMorgan anticipates outsized digital subscriber growth driving continued share outperformance, with 2019 posting particular acceleration in average revenue per user.

The transition to digital will also save the publisher on production and distribution costs.

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The analysts forecast cash flow growth to accelerate as the company profits from a lower corporate tax rate and sheds $20 million in annual lease costs following the 2019 repurchase of its New York headquarters.

At the same time, they expect a new emphasis on “reliable” news at both Facebook Inc (NASDAQ: FB) and Alphabet Inc (NASDAQ: GOOGL) to work in the Times’ favor.

Price Action

Shares of New York Times Co closed Monday at $23.45, up 5.6 percent.