We have an Outperform rating on R.R. Donnelley (RRD), a leader in the commercial printing industry. Third quarter results beat Zacks Consensus Estimates. Revenue growth should pick up by 2011 as the recession blows over and demand gains momentum.

Meanwhile, cost containment efforts will improve margins and leverage growth in earnings. In our opinion, RRD has sound fundamentals and a number of competitive advantages, which have enabled it to generate impressive cash flow.

The company’s aggressive acquisition policy, debt repayment initiative and stable dividend payout are other positives. However, while the economy is on the mend, printers typically lag a recovery. Additionally, the highly leveraged balance sheet and integration related risk are a concern. We set a price target of $25.00.

Zacks Investment Research

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