This stock could benefit massively from the Justice Department’s lawsuit against Alphabet

The US Department of Justice (DOJ) appears headed for a victory in its landmark antitrust case against the tech and search giant. Alphabet (GOOG 0.89%) (GOOGL 0.75%)which owns Google.

The DOJ alleged that Google essentially used illegal practices to dominate the search engine business and ensure that it was the default search engine for advertisers. In early August, a judge sided with the DOJ and a panel of 38 state attorneys general, declaring that Google is a monopoly and has indeed violated antitrust law.

The ruling has big ramifications for the online advertising space and could even lead to a breakup of Google. While things could take some time yet, here’s a stock that could benefit enormously from this ruling.

A strong argument for the largest newspaper publisher in the country

Google’s alleged antitrust tactics could have taken money out of the pockets of dozens of different businesses, including newspaper publishers, that have been significantly disrupted by the Internet. Gannett (GC 3.30%) is the largest newspaper publisher in the country and has filed a lawsuit against Alphabet that is heading to the DOJ docket.

Gannett’s suit says in part:

Because of its illegal monopoly, Google controls the “shelf space” on publisher pages where ads appear. Exploit that control to beat competition from rival exchanges. The lack of competition for publishers’ ad space lowers prices and reduces the quantity and quality of news content available to readers. Only Google is getting ahead because it controls an ever-increasing portion of the dwindling ad space that remains.

I’m no legal expert, but this case seems extremely compelling to Gannett for several reasons. First, there has already been significant discovery work due to the DOJ case, which Gannett can now access.

Management also anticipates that its lawsuit against Alphabet may move faster due to the DOJ process and pending results, which could take another year or two to resolve due to appeals. But the Gannett case now has a precedent to work from.

The other interesting component of the case is the law firm representing Gannett: the antitrust firm Kellogg Hansen. He represents Gannett on a contingency basis, meaning his payment comes only from potential damages.

Kellogg Hansen obtained the largest and second largest payouts in antitrust cases, both of which generated more than $1 billion. If the firm takes the case out of the blue, it suggests that its lawyers believe they have a good chance of winning.

The potential to transform the balance sheet

Gannett says it anticipates “substantial damages” even before the automatic tripling under US antitrust law. Legendary investor Bill Miller, who is a Gannett shareholder, previously wrote in a letter to shareholders that a payout could bring in more than $1 billion.

New Media Investment acquired Gannett in 2019 (keeping the Gannett name), taking on its massive debt. Since then, it has done a good job of paying down that debt, reducing it from about $1.76 billion to $1.09 billion at the end of the second quarter of 2024.

So, in a best-case scenario, a big payout from the lawsuit could wipe out all the debt for Gannett, turning the balance sheet around and sending the stock much higher.

But even a few hundred million dollars in damages would move the needle dramatically. Gannett currently trades at a forward enterprise value-to-EBITDA ratio of just under 6. Cutting $300 million in debt would bring that multiple below 5. Cutting all debt in the best-case scenario would bring the EV forward. to-EBITDA below 2.3.

Consider this The New York Timeswhich is a much better performing company than Gannett, currently trades at nearly 19 times forward EV to EBITDA. Gannett has shown signs of improving its core business and growing digital revenue. A stock revaluation to, say, even 9 times pre-EV to EBITDA, on top of lower debt, would result in a significantly higher share price.