R.R. Donnelley & Sons: High-Yield Opportunity Or Value Trap?


INTRODUCTION

R.R. Donnelley & Sons (RRD) has a yield approaching 10% at the time of this writing.  We’ll look at the following in an attempt to answer the question “High Yield Opportunity Or Value Trap?”

  • Major headwinds that could continue to negatively impact results
  • Measuring how management is navigating the risks.
  • Valuation given past and projected results
  • Conclusion

RISK

Below are two major concerns creating headwinds for RRD from the 10-K filing.

  1. Global market and economic conditions, as well as the effects of these conditions on our customers’ businesses, have adversely affected the Company and those effects could continue.
  2. The substitution of electronic delivery for printed materials may continue adversely to affect our businesses.

Although both are having an impact we think item one has wrought havoc on the stock price while item 2 is manageable over time.  The financial crisis has hit this industry hard.  The following comparison of five-year cumulative total return among RRD, S&P 500 Index and peer group (source 10-K) correspond to the start and continued effects of the financial meltdown.
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