Why New Media Investment Group Is 'Clearly' Undervalued 'If Cash Is King'

James Goss, analyst at Barrington Research, reaffirmed the firm's Outperform rating on New Media Investment Group Inc NEWM as the company "continues to execute on an acquisition strategy." Goss said that by "any" measure – free cash flow, dividend, EBITDA or as a multiple of sales – New Media "looks attractive."

At current levels, closing Tuesday at $15.80, New Media yields 8.4 percent via dividend and has 17.5 percent free cash flow yield. Goss said that at the firm's target price of $24, the cash dividend would yield 5.8 percent and free cash flow yield would be 11.8 percent, levels that would not be out of line.

Further, Goss said that the firm believes the dividend is relatively safe, given the fact that New Media will be able to generate "substantial" cash flow. "We feel the company would have to think long and hard before tampering with a dividend it can well afford to pay," the note stated. If the stock price recovers, it would only secure the dividend, Goss argued.

Goss values the stock at 8x EV/EBITDA versus the 6x that the stock currently trades at. At these levels, Barrington Research said that the "acquisition story should hold together."

Thus far in 2015, New Media has significantly underperformed the market, falling 33 percent. If the chart broadens to the prior 52 weeks, however, that underperformance gap shrinks. New Media has gained 7.1 percent in the past year compared with an 8.7 percent increase in the S&P 500.