BUSINESS
Daily Journal Corporation publishes newspapers and websites covering in California, Arizona, and Utah. It operates in two segments, Traditional Business and Journal Technologies. The company publishes 10 newspapers of general circulation, including Los Angeles Daily Journal, San Francisco Daily Journal, Daily Commerce, The Daily Recorder, The Inter-City Express, San Jose Post-Record, Orange County Reporter, The Daily Transcript, Business Journal, and The Record Reporter. It also provides specialized information services; and serves as an advertising and newspaper representative for commercial and public notice advertising.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, DJCO is expected to be a modest Value Builder.
Daily Journal has a current Value Trend Rating of C (Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Daily Journal has a poor Appreciation Score of 28 but a good Power Rating of 78, resulting in the Neutral Value Trend Rating.
Daily Journal’s stock is selling above targeted value. The current stock price of $370.95 compares to targeted value 12 months forward of $308.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
Daily Journal has a Power Rating of 78. (This good Power Rating indicates that DJCO has a better chance of achieving attractive investment performance over the near to intermediate term than all but 22% of companies in the universe.)
Contributing to this good Power Rating: recent price action has been favorable. An offsetting factor is the Prepackaged Software comparison group is in a slightly weakened position currently.
INVESTMENT PROFILE
DJCO’s financial strength is above average. Financial strength rating is 65.
Relative to the S&P 500 Composite, Daily Journal Corp has neutral Growth/Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that DJCO is normal risk. Relative weaknesses include: low forecasted profitability, and high earnings variability. DJCO’s valuation is moderate: low dividend yield, moderate P/E ratio, and moderate price/book ratio. DJCO has unusually low market capitalization.
CURRENT SIGNALS
Daily Journal’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
Daily Journal’s current technical position is very strong. The stock price is in a 14.5 month up move. The stock has appreciated 57.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Positive development: significant quarterly sales acceleration occurred. Negative development: significant quarterly earnings deceleration occurred.
The stock is currently rated C.
On 4/5/24, Daily Journal Corp (NASDAQ: DJCO) stock increased 1.5%, closing at $370.95. Moreover, this advance was accompanied by above average trading volume at 149% of normal. Relative to the market the stock has been exceptionally strong over the last nine months and has risen 4.2% during the last week.
CASH FLOW
In 2023, Daily Journal generated a significant increase in cash of +$35.27 million (+12%). Sources of cash were larger than uses. Cash generated from 2023 EBITDA totaled +$6.93 million. Non-operating sources contributed +$25.78 million (+372% of EBITDA). Cash taxes consumed -$1.32 million (-19% of EBITDA). Withdrawal of investment from the business totaled +$8.37 million (+121% of EBITDA). On a net basis, debt investors withdrew -$4.49 million (-65% of EBITDA) while in 2023, equity investors had no impact on cash.
Daily Journal’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Daily Journal Peer Group. In most years, Daily Journal was in the top quartile and lower quartile. Currently, Daily Journal is upper quartile at +372% of EBITDA (+$25.78 million).
Daily Journal’s Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Daily Journal Peer Group. In most years, Daily Journal was in the lower quartile and top quartile. Currently, Daily Journal is lower quartile at -19% of EBITDA (-$1.32 million).
Daily Journal’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Daily Journal Peer Group. In most years, Daily Journal was in the top quartile. Currently, Daily Journal is upper quartile at +121% of EBITDA (+$8.37 million).
Daily Journal’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Daily Journal Peer Group. In most years, Daily Journal was in the top quartile and lower quartile. Currently, Daily Journal is lower quartile at -65% of EBITDA (-$4.49 million).
Daily Journal’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Daily Journal Peer Group. In most years, Daily Journal was in the top quartile and second quartile. Currently, Daily Journal is slightly above median at 0% of EBITDA ( $0.00 million).
Daily Journal’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Daily Journal Peer Group. In most years, Daily Journal was in the top quartile and lower quartile. Currently, Daily Journal is upper quartile at +509% of EBITDA (+$35.27 million).
Daily Journal’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Daily Journal Peer Group. (Since 2021 Cash, %Revenue has experienced a very sharp decline.) In most years, Daily Journal was in the top quartile. Currently, Daily Journal is upper quartile at +482%.
PROFITABILITY
Daily Journal’s return on equity has improved very significantly since 2014. The current level of 7.6% is 16.47X the low for the period and is -82.8% from the high.
Daily Journal’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of Daily Journal’s assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change but it experienced very sharp improvement from the 2021 level.
Daily Journal’s pretax margin enjoyed a very strong overall uptrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Daily Journal’s return on equity is at the upper quartile (7.6%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is at the upper quartile (5.6%) reflecting asset turnover that is at the lower quartile (0.20X) and pretax margin at the upper quartile (27.9%).
Tax “keep” rate (income tax management) is below median (81.5%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the lower quartile (1.68X).
GROWTH RATES
There are no significant differences between Daily Journal’s longer term growth and growth in recent years.
Daily Journal’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 5.2% per year.
Total asset growth has been 4.9% per year.
Annual E.P.S. growth has been 50.2% per year.
Equity growth has been 5.5% per year.
No consensus growth rate forecast is available for Daily Journal.
Relative to the Daily Journal Peer Group, Daily Journal’s historical growth measures are generally top quartile. Equity growth (5.5%) has been upper quartile. Revenue growth (5.2%) has been at the upper quartile. E.P.S. growth (50.2%) has been at the upper quartile. Total asset growth (4.9%) has been at median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Daily Journal’s stock price performance has been variable and in line with the market. Between June, 2013 and April, 2024, Daily Journal’s stock price rose +228%; relative to the market, this was a +1% gain. Significant price move during the period: 1) March, 2015 – July, 2019: +35%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 11.5% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 11.5% is at median relative to Daily Journal Corp Peer Group.
Current 5-year total return performance of 8.5% is slightly below median relative to the S&P 500 Composite.
Through February, 2024, with slightly below median current 5-year total return of 8.5% relative to S&P 500 Composite, Daily Journal’s total return performance is at median relative to Daily Journal Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, DJCO’s overall valuation is high. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Price/earnings ratio is above median. Ratio of enterprise value/earnings before interest and taxes is above median. Ratio of enterprise value/assets is at median. The lowest factor, the price/equity ratio, is below median.
Relative to Daily Journal Peer Group, DJCO’s overall valuation is quite high. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/earnings before interest and taxes is slightly above median. The lowest factor, the price/earnings ratio, is at median.
Daily Journal has a major value gap compared to the median valuation. For DJCO to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 8.15X to 3.14X. If DJCO’s ratio of enterprise value/revenue were to fall to 3.14X, its stock price would be lower by $-260 to $111.
For DJCO to fall to lower quartile valuation relative to the Daily Journal Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 8.15X to 1.65X. If DJCO’s ratio of enterprise value/revenue were to fall to 1.65X, its stock price would decline by $-337 from the current level of $371.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, DJCO is expected to be a modest Value Builder.
Daily Journal’s current Price Target of $319 represents a -14% change from the current price of $370.95.
This low appreciation potential results in an appreciation score of 28 (72% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 28, the high Power Rating of 78 results in an Value Trend Rating of C.
Daily Journal’s current Price Target is $319 (+42% from the 2023 Target of $224 but -14% from the 04/05/24 price of $370.95). This dramatic rise in the Target is the result of a +15% increase in the equity base and a +24% increase in the price/equity multiple. The forecasted increase in cost of equity has a large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 9.5% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly below the 2022 peak of 44%.
PTR’s growth forecast is 10.0% — below our recent forecasts. Forecasted growth exhibited a modest, erratic decline between 2015 and 2023. The current forecast is well below the 2015 peak of 17%.
PTR’s cost of equity forecast is 7.4% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is well below the 2022 peak of 16.1%.
At Daily Journal’s current price of $370.95, investors are placing a positive value of $152 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 15.0% per year, and a return on equity of 8.0% versus a cost of equity of 7.1%.
PTR’s 2025 Price Target of $319 is based on these forecasts and reflects an estimated value of existing assets of $239 and a value of future investments of $80.
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