RRD.WI Donnelley (R.R.) & Sons Co.

Printing major R. R. Donnelley & Sons Co. (RRD) recently announced that it has secured a multi-year contract from International Airlines Group (“IAG”), the parent body of British Airways, Iberia and Avios. However, the details of the transaction were not disclosed. Per the contract, Donnelley will mainly provide print management, direct response, warehousing, and logistics services.

Over the past 12 months, important contract wins have ensured significant growth for Donnelley. Donnelley won a number of multi-year multi-million dollar contracts from the likes of Guidepost, Parke-Bell Ltd. and Office Depot (ODP). Donnelley also won a multi-year contract from Canada-based Scotiabank, which expands the company’s presence in North America.

We believe that the new contract wins bode well for Donnelley, as they reflect its superior technology and growing reputation. Other than the multi-year contracts, Donnelley’s growth has also been driven by accretive acquisitions. In 2012, Donnelley acquired Presort Solutions, Meisel Photographic, Express Postal Options International and Edgar Online.

Currently, Donnelley is facing significant threat from digital technologies that enable much easier transfer, designing, resetting and reproduction of data. This affects big projects, such as books and journals, where the number of printed pages are much higher.

Additionally, with publishers coming out with digital versions of books and sophisticated e-book readers from Amazon.com Inc. (AMZN) and Barnes & Noble Inc. (BKS) for reading these books becoming increasingly available, the interest in commercially printed paperbacks and hard covers is waning.

Donnelley needs to expand its scope beyond this traditional business and acquisitions are likely to take it in that direction. We believe that Donnelley will achieve growth in fiscal 2013 due to its innovative product pipeline. Donnelley plans to introduce near field communication (“NFC”) tags during the year, which will boost top-line growth going forward.

Moreover, an improving macro-economic condition in the domestic market and cost cutting initiatives will boost profitability in the near term. Donnelley’s improving liquidity position is also a positive catalyst in our view.

Currently, Donnelley has a Zacks Rank #2 (Buy).

 
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