These stocks could benefit greatly from the Justice Department’s lawsuit against Alphabet

The US Department of Justice (DOJ) appears to be heading for victory in its landmark antitrust case against the tech and search giant Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)which owns Google.

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

This ruling has serious consequences for the online advertising space and could even potentially lead to the breakup of Google. While things may still take a while, here’s one stock that could benefit greatly from this ruling.

A strong argument for the largest newspaper publisher in the country

Google’s alleged antitrust tactics may have taken money out of the pockets of many different companies, including newspaper publishers whose businesses have been significantly disrupted by the Internet. Gannett (NYSE: GCI) is the largest newspaper publisher in the country and has filed a lawsuit against Alphabet, adding to the Justice Department’s lawsuit.

Gannett’s suit says in part:

I’m not a legal expert, but this case seems extremely compelling to Gannett for several reasons. First, there has already been significant discovery work in connection with the DOJ case that Gannett now has access to.

Management also anticipates that its lawsuit against Alphabet will be able to move more quickly thanks to the Justice Department lawsuit and expected results that could still take a year or two to develop due to appeals. But the Gannett case now has a precedent to build on.

The second interesting element of the case is the law firm representing Gannett: the antitrust firm Kellogg Hansen. She represents Gannett in contingency situations, which means her fee comes solely from potential damages.

Kellogg Hansen had the largest and second-largest payouts from antitrust cases, both of which brought in more than $1 billion. If a company takes a case on an emergency basis, it suggests that its lawyers believe they have a good chance of winning.

Potential to transform the balance sheet

Gannett says it expects “substantial harm” even before the automatic tripling under U.S. antitrust law. Legendary value investor Bill Miller, who is a Gannett shareholder, previously wrote in a letter to shareholders that the payout could bring in well over $1 billion.

New Media Investment acquired Gannett in 2019 (keeping the Gannett name), taking on massive debt. It has since paid down that debt well, bringing it down 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 large payout from the lawsuit could potentially wipe out all of Gannett’s debt, reshaping the balance sheet and causing the stock to rise significantly.

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

Consider this The New York Timeswhich is performing much better than Gannett, is currently valued at almost 19 times forward EV to EBITDA. Gannett also showed signs of improving its core business and increasing digital revenues. Re-rating the stock to, say, up to 9 times forward EV to EBITDA, combined with lower debt, would lead to a much higher share price.

Is it worth investing $1,000 in Gannett now?

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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Bram Berkowitz has a position at Gannett. The Motley Fool has positions in Alphabet and The New York Times Co. The Motley Fool has a disclosure policy.