Quad/Graphics, Inc. – Value Analysis (NYSE:QUAD) : January 5, 2017

Capitalcube gives Quad/Graphics, Inc. a score of 19.

Our analysis is based on comparing Quad/Graphics, Inc. with the following peers – R.R. Donnelley & Sons Company, Cenveo, Inc. and InnerWorkings, Inc. (RRD-US, CVO-US and INWK-US).

Investment Outlook

Quad/Graphics, Inc. has a fundamental score of 19 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative outperformance over the last year has faded more recently.
  • Quad/Graphics, Inc. Class A’s current Price/Book of 2.36 is about median in its peer group.
  • QUAD-US‘s EBITDA-based price multiple implies better than peer median growth. The market seems to expect improvement in the company’s current EBITDA-based return on equity.
  • QUAD-US has relatively low profit margins and median asset efficiency.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • QUAD-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • Compared with the peers chosen, QUAD-US has had faster revenue growth in prior years and a current Price/EBITDA ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • QUAD-US seems to be constrained by the current level of debt.

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Leverage & Liquidity

QUAD-US is debt-constrained.

  • With debt at a relatively high 46.88% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 52.11%), and interest coverage level of 2.64x, QUAD-US seems debt-constrained.
  • All 3 peers for the company have an outstanding debt balance.

QUAD-US has maintained its relatively high leverage profile from the recent year-end.

  • QUAD-US‘s interest coverage is similar to last year’s low of 2.24x, which compares to the 2013 high of 2.75x.
  • Compared to 2015, interest coverage has remained relatively stable for both the company (2.64x) and the peer median (2.50x).
  • QUAD-US‘s debt-EV is its lowest relative to the last five years and compares to a high of 75.63% in 2015.
  • The decrease in its debt-EV to 46.88% from 75.63% (in 2015) was also accompanied by a decrease in its peer median during this period to 52.11% from 65.78%.
  • Relative to peers, debt-EV fell 15.09 percentage points (and is now lower than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
R.R. Donnelley & Sons Company 57.35 1.49 2.35 16.16
Cenveo, Inc. 94.96 1.2 1.03 4.25
InnerWorkings, Inc. 21.59 1.64 7.32 34.23
Quad/Graphics, Inc. Class A 46.88 1.2 2.64 28.92
Peer Median 52.11 1.35 2.5 22.54
Best In Class 21.59 1.64 7.32 34.23

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Company Profile

Quad/Graphics, Inc. provides a diverse range of print solutions, media solutions and logistics services from multiple locations throughout North America, Latin America and Europe. The company operates through the following segments: United States Print and Related Services, International and Corporate. The United States Print and Related Services segment comprises of its U. S. printing operations, which is managed as one integrated platform and its products include catalogs, consumer magazines, special insert publications, direct mail, packaging and other commercial and printed products, retail inserts books and directories. The International segment provides printed products and related services consistent with the United States Print and Related Services segment, with the exception of printing-related auxiliary equipment, which is included in the United States Print and Related Services segment. The Corporate segment consists of unallocated general and administrative activities and associated expenses, including in part, executive, legal, finance, information technology and human resources. The company was founded by Harry V. Quadracci, Betty Ewens Quadracci and Thomas A. Quadracci on July 13, 1971 and is headquartered in Sussex, WI.

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