HARTE-HANKS INC. $14 (New York symbol HHS; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 63.6 million; Market cap: $890.4 million; Price-to-sales ratio: 0.9; WSSF Rating: Average) gets roughly two-thirds of its revenue by selling direct-mail and other marketing services to clients in a wide variety of industries. These help them attract new customers, and sell more goods and services to existing ones. The remaining third of its revenue comes from publishing free “shopper” newspapers in Florida and California. These papers rely solely on advertising.
Both of these are cyclical businesses, and they have suffered during the recession as advertisers look to conserve cash. In response, Harte-Hanks has consolidated printing plants and closed call centres.
These moves helped cut Harte-Hanks’s operating expenses by $49.3 million in the three months ended June 30, 2009. Despite the lower costs, overall earnings in the quarter still fell 28.3%, to $13.1 million, or $0.20 a share, from $18.2 million, or $0.29 a share, a year earlier. Revenue fell 21.5%, to $215.7 million from $274.8 million.
Harte-Hanks is putting the savings from its restructuring toward its debt: In the first half of 2009, it repaid $14.3 million of its loans. The remaining $217.6-million long-term debt is a moderate 24% of Harte-Hanks’s market cap. It holds cash of $74.9 million, or $1.18 a share.
The stock trades at 17.5 times the $0.80 a share that Harte-Hanks will probably earn this year. That’s reasonable in light of its high-quality clientele and strong reputation. The $0.30 dividend yields 2.1%.
Harte-Hanks is a buy.
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