RR Donnelley: Risen From the Dead

by Alyssa Oursler | June 27, 2013 10:59 am

Don’t look now, but RR Donnelley & Sons (RRD[1]) 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[2]).

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.”[3]

The gaffe — and the earnings themselves — caused Google to shed nearly 10% in one day[4]. 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[5]) 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[6]) and more. Most recently, it expanded its relationship with retailer Williams-Sonoma (WSM[7]) 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.

Source URL: https://investorplace.com/2013/06/rr-donnelley-risen-from-the-dead/

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