Is RRD A Better Bargain Than Ever?

When high-quality companies trade at relative lows, it is often worthwhile to assess why the stock price is depressed.

If the companies long-term investment prospects remain strong, then buying the dips can be rewarding for shareholders.

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
– Warren Buffett

R.R. Donnelley & Sons (RRD) is currently trading at a 52-week low. In the past year, this stock has traded as high as ~$23 and currently sits at $13.66.

R.R. Donnelley & Sons (RRD) Stock Price

Source: Yahoo! Finance

Upon further investigation, it appears that the cause of this low stock price is a substantial business reorganization that RRD completed last fall.

This article will examine whether RRD’s current stock price presents a bargain for investors.

Business Overview

Recently, RRD has gone through some significant restructuring.

Effective October 1, 2016, the company has spun-off two large business units which will now trade independently on stock exchanges:

  • LSC Communications, Inc. (LKSD): Publishing, print services, and office products
  • Donnelley Financial Solutions, Inc. (DFIN): Financial communications and data services

Existing RRD investors received one share of LSC Communications and one share of Donnelley Financial Solutions for every eight shares of RRD held at the close of business on September 23, 2016.

Immediately following the spin-off, RRD’s common stock completed a reverse 3-for-1 stock split. This means that every 3 shares of RRD before the event became 1 share.

For both the spin-offs and the reverse stock split, fractional shares were not issued – investors received cash instead.

RRD holds a 19.25% stake in each of the new corporate entities, which is must sell within one year of the spinoff to maintain the tax-free nature of the divestitures.

Here’s what RRD’s CEO has to say about the spinoff in the company’s fourth quarter earnings release:

“The fourth quarter of 2016 was a pivotal quarter in our history as we completed the previously announced spinoffs of LSC Communications and Donnelley Financial Solutions at the beginning of the quarter and then began operating as a standalone company intensely focused on providing integrated multichannel communications, supply chain and logistics solutions to our customers.

We are pleased with our fourth quarter results as we grew both our net sales and non-GAAP income from operations. And, although we exited the spin with debt leverage above our long-term target range, we remain on track to utilize the proceeds from disposing of our equity stakes in LSC Communications and Donnelley Financial Solutions, as well as cash generated from ongoing operating activities, to reduce our outstanding debt obligations.”
– Dan Knotts, RR Donnelley’s President and Chief Executive Officer

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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