Is New Media's Massive Selloff Rational? Citi Answers

In a report published Monday, Citi analyst Jason B Bazinet maintained a Buy rating on

, with a price target of $37. New Media's share price has declined from $22.48 to $18.72, implying a reduction of $168 million in enterprise value. The decline appears to be driven by the revelation that the company does not include tuck-in acquisitions in its same store sales. "By adjusting year-ago revenues for tuck-ins, we estimate that New Media's top-line is likely compressing by about 300bps per annum," analyst Jason B Bazinet pointed out. Bazinet views the decline in equity as surprising since the investors appear to have ignored the impact of New Media's incremental non-NOL based tax assets. "We estimate the value of these assets almost fully offsets the decline in top-line expectations," the report added. "We believe that New Media's shares will rebound from these levels for two reasons. First, our analysis suggests unless 80% (or more) of New Media's investor base was unaware of the same-store sales definition, then the shares have overreacted to our note. Second, we believe that eventually, the Street will likely give credit to the firm's incremental tax assets," Bazinet mentioned.