RR Donnelley: Risen From the Dead

RRD's comeback is a reminder that an embarrassing mistake isn't a death sentence

   

Don’t look now, but RR Donnelley & Sons (RRD) has officially roared back from its five minutes of infamy.

This morning, RRD reset its 52-week high and has pocketed a 55% gain for the year to date. That’s more than quadruple the broader market’s climb.

Not bad for a company that pissed off Google (GOOG).

In case you forgot: On Oct. 18, 2012, the Internet and investors suddenly began freaking out about a Google earnings report that was accidentally released early. The statement came out three hours before schedule and featured the much-mocked filler text “PENDING LARRY QUOTE.”

The gaffe — and the earnings themselves — caused Google to shed nearly 10% in one day. Google pointed a finger at its financial printer: RR Donnelley.

Investors weren’t quite as hard on RRD that day, only shaming it down 3%. But the headline hangover from the event was much more noticeable — an unsurprising reality when you consider the printer has 1% of Google’s market cap and half of its trading volume, and its business is very much behind the scenes.

Quite a different story from a legendary tech company wowing investors and consumers with new inventions like Google glass, and challenging incumbent mobile king Apple (AAPL) with its smartphones.

At that point, RRD had already been sliding since an August high and, from the incident to year-end, tacked on another 16% in losses, putting its total 2012 return at an ugly -40% vs. a double-digit gain for the S&P 500.

Either Donnelley & Sons made one heck of a New Year’s resolution, or investors finally put “PENDING LARRY” behind them and started focusing on the stock’s actual worth — something evidently way more than RRD’s $8 price tag of late 2012.

Even when the stock was in free fall, its earnings were consistently beating analyst estimates by around 15%. Plus, besides releasing Google’s earnings and printing Businessweek, RR Donnelley works for big-name companies like Zipcar, YellowPages, Heineken (HINKY) and more. Most recently, it expanded its relationship with retailer Williams-Sonoma (WSM) via a multiyear, multimillion-dollar agreement. This year, all those deals are expected to bring in $10.2 billion.

But that doesn’t necessarily mean now is the time to get in. That $10.2 billion figure is the same as it was a year ago … and that total is supposed to slip slightly in 2014. Plus, RRD’s margins are getting squeezed, with 2013′s flat sales translating to an expected 13% earnings drop for the full year, followed by a meager 2% recovery the year after. That translates to expected earnings declines of more than 1% annually during the next five years.

Still, even accounting for that income slide and its monster run-up, RRD is still anything but overbought. It’s only trading for 9 times expected 2014 earnings, while the broader industry trades for 22 times earnings, according to Yahoo Finance.

Bottom line: Don’t let PR gaffes like the Google release cloud your investment judgement, both when considering RRD or other stocks. It’s easy to read into headline hype — and important to heed to it if other investors are — but don’t think an embarrassing but ultimately small misstep means a stock will be toast.

In the end, “Pending Larry” merely ended up being a perfect entry point for savvy traders.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/06/rr-donnelley-risen-from-the-dead/.

©2014 InvestorPlace Media, LLC

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