PreMarket Prep Stock Of The Day: Gannett

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

It is not often that we discuss penny stocks on our broadcast for a few different reasons. First of all, on most occasions when stocks fall under $1, they usually go to zero or trade in pennies for quite some time until they go under. A case in point is J C Penney Company Inc JCP.

As opposed to buying shares of an issue under $1, shorting them can be a disaster. With your upside capped at zero from your shorted price, the downside can be unlimited in the event of a short squeeze. 

Gannett Co Inc. GCI was not discussed on the show today, but it's showing a nice percentage gain Thursday, making it the PreMarket Prep Stock Of The Day.

The Steady Decline In Print Media

Gannett is the largest local newspaper company in the United States. They operate in 46 states with 261 brands, plus the iconic nationwide USA Today, altogether reaching an estimated digital monthly audience of nearly 140 million. 

Based on its five-year chart history, Gannett peaked in March 2015 at $25.43 and then embarked on a slow and steady decline.

In August 2019, Gannett shareholders were thrown a lifeline when New Media Investment Group, parent of GateHouse Media, announced that it would acquire the company in a cash-and-stock deal valued at $1.1 billion. The ill-fated deal was funded by Apollo Global Management with a $1.792-billion loan. The combined company assumed the Gannett name and stock symbol.

It should be noted that the issue only revisited the take-out price the day after the deal was closed, and three days later closed at $7.11.

Gannett Holds Steady At $6 Until Market Implosion

Gannett treaded water at the $6 area toward the end of 2019 and early in January, ending that month at $6.11. It fully participated in the market decline in February, ending that month at $4.20. While the broad market has rebounded, the issue drifted and did not find a bottom until April 7 at 63 cents.

While the broad market declined 35% and recouped over half its losses, Gannett has shed 89% of its value since the Jan. 31 close and recaptured only 10% of its losses, including Thursday's 25% appreciation.

Why Is Gannett Rallying? 

With a giant interest payment to private-equity backer Apollo due in two months, which is only one problem of many the company needs to address, Gannett is cutting costs. 

Although there is no official word from the company, Poynter said it has verified multiple layoffs across the country, including Robin Amer, host and creator of USA Today's "The City" Podcast.

Whether the layoffs are a direct result of the coronavirus crisis, the continuation of a long-term trend in the industry or a desperate effort to meet its capital call with Apollo is yet to be determined.

Gannett Moving Forward

Gannett shares are trading higher by 22.85% at $1.15 at the time of publication Thursday.

One of three reasons may be accounting for the rally. First of all, some inventors may construe the reduction in staff as a long-term positive for the company. Next, algorithmic/momentum traders who took notice of Wednesday's rally on much higher-than-average volume could be playing it from the long side.

Most likely, it's combination of those factors that are applying pressure to the 26% short interest in the issue and and attempting to cover in a rising market.