Tickers in this Article: WPO, NYT, APOL, NWS
To say that newspaper stocks are suffering from a shift to all things digital is an understatement. It's difficult to truly appreciate the extremely tough times that newspapers are going through. The internet has permanently changed the demand for newspapers so much that many of us may live to see the last newspaper delivered.It may come as a surprise that The Washington Post (NYSE:WPO), one of the most respected newspapers in the country, looks like an undervalued asset.

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The Times Have Changed
If The Post were merely a newspaper company, it's iconic status may not be enough save it from the digitalization of news. Even the New York Times (NYSE:NYT), considered by many to be the most iconic newspaper in the country, is facing an onslaught. Not only is the internet driving away print subscribers, but this week The Wall Street Journal, owned by media giant News Corp (Nasdaq:NWS) announced that the Journal was launching a separate metro section to compete directly with the New York Times. So if it's not the internet and the abundance of free online news sites that's killing the papers, competition from rivals is always lurking around the corner. (For more, see Economic Moats: A Successful Company's Best Defense.)

Not Just a Newspaper
Fortunately for the Washington Post, it is anything but a newspaper company - its a media company with some valuable assets. In addition, the namesake newspaper, the Post, also owns Kaplan, a cable business with nearly 700,000 subscribers, network TV stations and Newsweek magazine. At a market cap of $4.8 billion, the company's assets look to be discounted by the market. Kaplan is the second largest education company behind only Apollo Group (Nasdaq:APOL). Kaplan currently generates revenues of nearly $2.6 and operating income of $300 million. With Apollo being valued at 2 times revenues and 7 times EBITDA, similar multiples would suggest Kaplan is worth as much as $4 billion. This implies that the newspaper, the cable assets and Newsweek are all worth less than $ 1 billion.

Margin of Safety
Even if you value Kaplan at $3 billion, that assigns $2 billion for the rest. While the market might not ascribe much value Newsweek magazine, the cable assets and merely the online component of the Post would likely be worth more than $2 billion. Whatever the ultimate value, shares in the Washington Post appear to offer an incredible margin of safety at current prices. (For more, see The Value Investor's Handbook.)

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