Blc - Zacks Investment Research



|Belo Corp. (BLC–NYSE) | |

| |$16.26 |

Note: All changes since the previous report are highlighted

Reason for Report: BLC approves Spinoff (3/6 brks w. cvg.)

Prev. Ed.: December 31, 2007, Minor Change in Estimates

Brokers’ Recommendations: Neutral: 50.0% (3 firms); Positive: 50.0% (3 firms); Negative: 0% Prev. Ed.: 2; 2; 0

Brokers’ Target Price: $20.90 (↓$0.98 from last edition; 5 firms) Brokers’ Avg. Expected Return: 28.5%

Recent Events – Summary

January 18, 2008: IRS approved BLC tax-free distribution.

January 11, 2008: BLC Board of Directors approved spinoff.

January 7, 2008: Yahoo, Belo signed agreement for news video.

November 27, 2007: BLC announced the promotions of three corporate executives.

November 26, 2007: BLC announced that it named Edward E. (Ed) Olkkola Senior Vice President/Business Development.

October 25, 2007: BLC announced 3Q07 results.

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Overview

Analysts have identified the following issues as critical to an evaluation of the investment merits of BLC:

|Key Positive Arguments |Key Negative Arguments |

|Top Broadcast Properties – BLC has market-leading franchises in Dallas, |Family Controlled – 55% of the voting power is controlled by family members. |

|Houston, and Seattle. BLC’s television stations are ranked #1 or #2 in 13 of|As a result of which interest of other shareholders may get hampered. |

|the 15 markets in which it operates. The company is in excellent markets and| |

|has a diversified business portfolio. | |

|Texas Economic Recovery – The Dallas Morning News is 60% of BLC’s newspaper |Circulation Erosion – Newspaper circulation industry-wide is declining as |

|revenue while Texas stations contribute 20% of broadcast revenue. A growing |readers shift to free dailies and the Internet. Also, prime time broadcast |

|Texas economy could increase the company’s earnings potential. |TV viewership declined over the past decade due to cable penetration. |

|High ROIC – BLC has one of the highest returns on invested capital of leading|Increased Competition – Increased media competition in TV from cable networks|

|newspaper publishers. |and in newspapers from online recruitment sites may slow down BLC’s recovery |

| |rate. |

|Well-Regarded Management – BLC managed costs well with its EBITDA margin |Uneven Advertising Revenue – To date, companies that depend on advertising |

|holding up in a difficult environment. Significant leverage is possible in |spending have experienced an uneven economic recovery. |

|the TV Group past the recent revenue softness. | |

Texas-based Belo Corp. (BLC) is one of the nation’s largest media companies with a diversified group of television, newspaper, cable, and interactive media assets. The company operates primarily in Texas, the Northwest, the Southwest, the Mid-Atlantic region and Rhode Island. BLC has two operating segments – Television Group and Newspaper Group. The Television Group sells air time for advertising and broadcasts news, entertainment, and other programs. The Newspaper Group engages in the sale of advertising space and in the distribution of newspaper editions to distributors and individual subscribers as well as in commercial printing. As of March 5, 2007, the company owns and operates four daily newspapers, 20 television stations, 7 cable news channels, 1 television station managed through a local marketing agreement, and operates more than 30 Web sites and several interactive alliances and a broad range of Internet products. BLC’s newspapers include the Dallas Morning News, the Providence Journal, The Press-Enterprise (Riverside, California), and the Denton Record-Chronicle (Denton, Texas). Additional information can be obtained from the company’s website at . BLC’s fiscal year ends December 31.

December 31, 2007

Recent Events – Details

On January 18, 2008, BLC announced that the Company received a private letter ruling from the Internal Revenue Service, confirming that the previously announced decision to spin off the Company's newspaper businesses and related assets will qualify as a tax-free distribution to Belo shareholders for U.S. federal income tax purposes. Belo also announced the filing of its information statement on Form 10 with the Securities and Exchange Commission.

On January 11, 2008, BLC announced that its Board of Directors approved details of the Company's previously-announced plan to create separate television and newspaper businesses through the spin off of its newspapers and related assets into a publicly-traded company called A. H. Belo Corporation. The transaction will be completed through a special tax-free stock dividend distribution to shareholders on all outstanding shares of Belo Corp. common stock.

On January 9, 2008, BLC announced that 13 of its television stations will be the exclusive providers of local news video in their markets to Website operator, Yahoo Inc. The companies announced that they will share advertising revenue from the videos. Financial terms of the agreement were not disclosed.

On November 27, 2007, Belo Corp. announced the promotions of three corporate executives. Guy H. Kerr was elevated to the position of Executive Vice President/Law and Government and Secretary, Carey P. Hendrickson was named as the Senior Vice President/Chief Accounting Officer and W. Craig Harper was named as the Vice President/Technology.

On November 26, 2007, Belo Corp. announced that it named Edward E. (Ed) Olkkola as the senior Vice President/Business Development. Olkkola will be responsible for driving Belo's strategic investments, developing an enterprise-wide product innovation process, and creating partnerships with companies whose aligned business models and technologies can lead to the creation of new audience and business opportunities.

On October 25, 2007, BLC announced its 3Q07 earnings. Highlights are as follows:

• Revenue was $364.0 million, down 3.2% y/y.

• EPS was $0.18 versus $0.19 in 3Q06.

Revenue

BLC's consolidated revenue in 3Q07 decreased 3.2% y/y to $364.3 million with an increase in Television Group revenue, partially offset by a decline in Newspaper Group revenue. The results were in line with Zacks Digest average.

Revenue segment details, according to the Company report, are as follows:

Television Group revenue increased 1.8% y/y to $182.3 million (in line with the Zacks Digest average) with political revenue of $3.2 million in 3Q07 versus $7.5 million in 3Q06 as the company cycled through a difficult year over year comparison. During the quarter, total spot revenue including political was flat y/y. National spot revenue increased 0.8% y/y while local spot revenue increased 3.9% y/y in 3Q07. Advertising revenue associated with Belo's television station websites increased 39.6% y/y to $6.7 million in 3Q07. Markets experiencing gains in 3Q07 were Dallas, Houston, Charlotte, and New Orleans. Categories such as home improvement, telecom, food products, household products, legal services, and retail, all experienced gains during the quarter. However, the auto business continues to be soft and was flat y/y.

Management expects spot revenue excluding political to be up in mid single digits in 4Q07 and total Television Group revenue to be down in mid single digits.

One analyst (Citigroup) expects beyond 2007, the picture will brighten up for Belo’s TV business. The analyst expects 2008 to be a strong year for the company and forecasts 11.6% topline growth for 2008.

Belo is now targeting 4Q07 TV spot revenue to be up mid-to-high single digits excluding political advertising or down low-to-mid single digits including political advertising. This represents an improvement from Belo's prior guidance issued during BLC's 3Q07 earnings, which called for a mid single digit increase excluding political or a mid single digit decline including political.

Newspaper Group revenue decreased 7.8% y/y to $181.9 million (in line with the Zacks Digest average) in 3Q07 due to the softness in newspaper advertising and the downturn in the Southern California housing market. Decreases were noted in retail, general, and classified revenue while preprint revenue was up approximately 3% y/y. Newspaper Group’s online advertising revenue increased 25% y/y to $13.9 million.

Belo forecasts newspaper revenue to decline in the high single digits in 4Q07. Belo projects 4Q07 newspaper revenue to be down slightly more than year-to-date results (-9%) after adjusting for 1 less Sunday. In October 2007, BLC had forecast that adjusting for 1 less Sunday, newspaper revenue would be down in line with year-to-date results.

One analyst (Citigroup) expects Newspaper revenue to decline 8.5% y/y in 4Q07. Given the limited visibility, the analyst (Citigroup) currently does not anticipate a return to revenue growth until 4Q08 at the earliest, and expects revenue declines for the first 9 months of 2008.

Another firm (Bear Stearns) expects Newspaper revenue to decline to 12.5% from previously expected 11.2%.

Provided below is a summary of revenue as compiled by Zacks Digest:

|Revenue ($MM) |3Q06A |3Q07A |4Q07E |2007E |1Q08E |2008E |2009E |

|Sequential Growth |-6.8% |-6.7% |11.0% |  |-13.8% |  |  |

Highlights include:

• For FY07, the estimated revenue ranges from $1,510.0 million to $1,516.9 million, with an average of $1,513.4 million (↔ with the previous estimate).

• For FY08, the estimated revenue ranges from $1,525.3 million to $1,592.7 million, with an average of $1,559.0 million (↓ from the previous estimate of $1,562.0 million).

• For FY09, the estimated revenue ranges from $1,485.6 million to $1,593.7 million, with an average of $1,523.1 million (↓ from the previous estimate of $1,561.5 million).

Following is a graphical analysis of revenue segments:

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Please refer to the Zacks Research Digest spreadsheet of BLC for specific revenue estimates.

Margins

Consolidated EBITDA decreased 1.7% y/y to $79.2 million in 3Q07. The Company's total operating costs and expenses decreased 2.2% y/y, benefiting from head count reductions in 2006, lower pension expense related to the Company's decision to freeze its pension plan effective March 31, 2007, significantly lower newsprint expense from decreases in both consumption and price, and lower distribution expense related to the Company’s decision to reduce the circulation perimeter of The Dallas Morning News. According to Zacks Digest average, EBITDA decreased 8.0% y/y and EBITDA margin was 21.6% versus 22.8% in 3Q06. Corporate costs and expenses were $23.7 million in 3Q07 as compared to $24.3 million in 3Q06, a decrease of 2.5% y/y, including $2.3 million related to the spinoff. BLC expects operating expenses to be less in FY07 as compared to FY06 after adjusting for the anticipated charges related to the spinoff.

Segment EBITDA margin and expenses, as reported by the company, are as follows:

Television Broadcasting – Cash expenses increased 2.3% y/y to $111.8 million in 3Q07. As a result, EBITDA increased to $70.6 million in 3Q07 from $69.9 million in 3Q06. 3Q07 EBITDA margin was 38.7% in 3Q07 versus 39.0% in 3Q06.

Newspaper Publishing – Expenses decreased 6.9% y/y to $151.3 million because of the continued decrease in newsprint and direct compensation expenses. Direct compensation expenses decreased largely as a result of the 2006 head count reductions at the Dallas Morning News and The Press-Enterprise. As a result, segment EBITDA decreased 11.0% y/y to $30.7 million in 3Q07 with the EBITDA margin being 16.9%.

Outlook

As per Zacks Digest, salaries, wages & employee benefits are expected to decrease by 3.5% in FY07, then increase by 0.7% in FY08, and by 0.1% in FY09 against a revenue decline of 4.7% in FY07, then an increase of 3.0% in FY08, and then decrease by 2.3% in FY09. Thus, operating margin is expected to show an increasing trend in future.

Provided below is a summary of margins as compiled by Zacks Digest:

|Margins |3Q06A |3Q07A |4Q07E |2007E |1Q08E |2008E |2009E |

|Sequential Growth |-33.3% |-42.8% |89.7% |  |-64.8% |  |  |

Highlights from the above EPS chart are as follows:

• 2007 forecasts (6 analysts) range from $0.99 to $1.06; the average is $1.03 (↑ from the previous estimate of $1.01).

• 2008 forecasts (6 analysts) range from $1.07 to $1.35; the average is $1.24 (↓with the previous estimate of $1.25).

• 2009 forecasts (3 analysts) range from $0.85 to $1.27; the average is $1.04 (↓with the previous estimate of $1.07).

Please refer to the Zacks Research Digest spreadsheet of BLC for more extensive EPS figures.

Target Price/Valuation

Of the 6 firms covering the stock, 3 gave positive ratings and 3 gave neutral ratings. None of the firms gave a negative rating.

Twelve-month price targets provided by firms range from $20.00 (Deutsche Bank, BMO Capital) to $22.00 (Bear Stearns, Citigroup), with the average price target being $20.90 (↓ from the previous price of $21.88). The firm (Citigroup) quoting the highest target price used 8.5x 2007 EV/EBITDA estimate and 10x BLC’s TV assets as its valuation methodologies while another firm (Bear Stearns) with the highest price target did not provide any valuation. The firm (Deutsche Bank) quoting the lowest target price used DCF analysis to derive the target price, while another firm (BMO Capital) with the lowest price target applied sum of the parts analysis as the valuation metric.

|Rating Distribution |

|Positive |50.0% |

|Neutral |50.0% |

|Negative |0.0% |

|Avg. Target Price |$20.90↓ |

|Median Price Target |$20.50↓ |

|Max |$22.00↓ |

|Min |$20.00 |

|No. of Analysts with Target Price/Total |5/6 |

Metrics detailing current management effectiveness are as follows:

|Metric (ttm) |Company |Industry |S&P |

|Return on Assets (ROA) |3.43% |7.51% |8.80% |

|Return on Equity (ROE) |8.02% |13.58% |21.63% |

|Return on Invested Capital (ROIC) |3.81% |11.23% |12.82% |

ROA, ROE, and ROIC are lower than the average of 8.80%, 21.63%, and 12.82%, respectively, as measured by the S&P500.

Please refer to the Zacks Research Digest spreadsheet of BLC for more details on valuation.

Capital Structure/Solvency/Cash Flow/Governance/Other

Total debt as of September 30, 2007, was $1,203 million. Interest expense decreased by $1.3 million to $23.6 million in 3Q07. Income tax expense decreased $1.8 million or 13.9% y/y in 3Q07. BLC's leverage ratio, as defined in the Company's credit facility, was 3.0 times as of September 30, 2007. Belo's total depreciation and amortization expense increased 9.3% y/y to 24.2 million in 3Q07 primarily due to asset additions related to new facilities at The Press-Enterprise and The Dallas Morning News.

One analyst (Bear Stearns) believes that Belo has the capability to repurchase a significant amount of shares in FY07. Another use of the company’s cash flow would likely be an increase in dividends. The company noted that the Board can be expected to revise the dividend upward every 4 to 6 quarters.

The company invested $11.3 million in capital expenditure in 3Q07. In 4Q06, management projected capital expenditure of around $100 million for both 2007 and 2008.

Split Update. Belo released its plans, detailing the company's split into 1) stand-alone newspaper and 2) stand-alone TV companies. BLC established January 25, 2008, as the record date for shareholders with share distributions expected on February 8, 2008. Series A common stock for A.H. Belo will trade under the ticker AHC on February 11, 2008, and Belo Corp. will continue to trade under the ticker BLC. BLC's A shares will continue to trade inclusive of the stock distribution or "regular way" up to and including the distribution date. Following the distribution date, A.H. Belo shares will trade independently on a “regular way” basis.

January 18, 2007

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

December 31, 2007

Long-Term Growth

One brokerage firm (Bear Stearns) projected a long-term growth rate of 6.4% for BLC.

Analysts have a mixed long-term outlook for BLC. Others look upon it as “a sign of better things to come.” Analysts believe the Television segment’s performance will be highly dependent on political advertising. They also highlight the increasing popularity of the Internet, which will benefit websites in both segments, Television and Newspapers. Analysts believe that, over the next few quarters, Television performance will hold the key to the revival of the company’s fortunes, as the sluggish growth outlook for the Newspaper Group persists.

BLC has been struggling for the last few quarters. A slow ad market recovery, combined with the problem of uneven regional economic recoveries, led to a slow pickup in local ad revenue. Management has been successful in curtailing costs but constrained margins and market share erosion have offset this advantage. Increase in severance charges and one-time transition costs could burden the company’s already beleaguered margins. Management reduced its long-term capex allocation to about $100 million for the next few years, which could delay long-term projects (New Orleans). Non-utilization of high debt due to a lack of attractive opportunities that could fuel further growth and enhance shareholder value seems to be hurting the company’s performance, not to mention heavy interest payments and the encumbering of assets.

December 31, 2007

Upcoming Events

On December 7, 2007, announced that its Board of Directors declared a quarterly cash dividend of $0.13 for each outstanding share of Series A stock and Series B stock to be paid on January 25, 2008, to shareholders of record on January 10, 2008.

On February 13, 2008, BLC will announce its 4Q07 and FY07 results.

January 11, 2008

Individual Analyst Opinions

POSITIVE RATINGS (50.0%)

BMO Capital - Outperform ($20 – target price) – 01/11/08: The firm reduced the price target from $22.00 to $20.00, and reiterated an Outperform stance.

Bear Stearns – Outperform ($22 – target price) – 01/11/08: The firm maintained an Outperform rating but reduced the target price from $25 to $22.

Citigroup – Buy ($22 – target price) – 12/04/07: The firm maintained a Buy rating and reduced the target price from $25 to $22 on lower peer multiples. INVESTMENT SUMMARY: The firm believes that BLC’s diversified portfolio consisting of newspaper and TV business will provide steady long-term revenue and earnings growth. Further, the firm believes that Belo’s TV division stands out with its balanced portfolio of top-ranked stations in desirable larger markets, which helps it to consistently deliver in line or better performance than its peers.

NEUTRAL RATINGS (50.0%)

Benchmark – Hold (no price target) – 01/07/08 – The firm maintained a Hold rating due to the continued weakness in newspaper advertising and uncertain outlook for newspaper publishing.

Deutsche Bank - Hold ($20 – target price) – 12/04/07: The firm maintained a Hold rating and a target price of $20. INVESTMENT SUMMARY: Benefits from the Yahoo! collaboration may lead to advertising revenue growth, and the firm believes that, if Belo continues to exercise better-than-expected cost control, it could exceed EPS expectations. But a negative secular trend in the Newspaper segment is a major concern for the firm.

Goldman – Neutral ($20.50 – target price) – 11/29/07: The firm maintained a Neutral rating and decreased the target price from $21.50 to $20.50. INVESTMENT SUMMARY: The firm believes that BLC’s cost reduction efforts were not enough to offset the weak topline results while corporate expense grew due to the planned spinoff. The company continues to face a very challenging operating environment and the firm does not expect any fundamental improvement in 4Q07, particularly in the context of difficult y/y comparisons in the broadcast business.

NEGATIVE RATINGS (0%)

None

Research Associate: Neha Poddar

Copy Editor: Madhubanti Maitra

Content Ed.: Deepa Agarwal

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Zacks Research Digest

January 18, 2008

Research Associate: Neha Poddar, M.Fin.

Editor: Deepa Agarwal, M.Fin.,

Sr. Ed.: Ian Madsen, CFA; imadsen@; 1-800-767-3771, x9417

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