Shares of R.H. Donnelley have lost half their value since December as investors react to concerns about the yellow pages industry's health and the company's disappointing projections.

The latest blow came Thursday when rival yellow pages publisher Idearc reported that its ad sales fell nearly 5 percent in the fourth quarter. That sent Donnelley's already depressed stock tumbling 38 percent for the week.

Contributing to last week's decline was Deutsche Bank analyst Paul Ginocchio's decision to downgrade Donnelley shares from a "buy" to a "hold." Citing "a worsening outlook for the U.S. yellow pages market," he lowered his 12-month price target to $25 from $65.

In May, the shares closed at an all-time high of $83.90. The drop since then has wiped out more than $4 billion in shareholder value.

Analysts such as Ginocchio fret that the latest results from Dallas-based Idearc foreshadow difficult times for Donnelley, which plans to issue its fourth-quarter results Feb. 28.

Cary-based Donnelley employs 600 in the Triangle and more than 4,000 nationwide.

Donnelley's shares first hit the skids in the fall when the company reported a 2.2 percent drop in yellow pages advertising sales for the third quarter -- including a 7 percent decline in the Florida and Nevada markets, which are suffering acutely from the deteriorating housing market. Then shares tumbled 9 percent Dec. 5 after Donnelley issued disappointing projections for 2008.

Donnelley is the nation's third-largest yellow pages publisher, with directories in 28 states. As advertising migrates online, Donnelley has been pumping up its Internet business, but it still generates the bulk of its revenue from selling ads in paper directories.

Donnelley's online push includes last year's $345 million acquisition of Business.com, which companies use to search for services, vendors and potential customers; the $4.2 billion acquisition in early 2006 of Dex Media, a yellow pages publisher that also was a leader in online local searches; and consolidating its online yellow pages at a single site, DexKnows.com.

"While we believe that Donnelley's trends are more stable than the other publishers due to their mix of smaller markets, Donnelley still must contend with some large-market exposure and a deteriorating economy," Ginocchio wrote in a research report.

Customers in smaller markets are less likely to shift their ad business online, Ginocchio wrote. Donnelley's largest markets include Chicago; Las Vegas; Orlando, Fla.; and Denver.

Ginocchio pointed out some potential upsides for Donnelley, including the possibility that online ad revenue could be stronger than expected, "more than offsetting the expected print declines."

The Dex purchase also increased Donnelley's debt, which could weigh on the company's financial health.

On Monday, Standard & Poor's lowered its outlook on Donnelley's more than $9 billion in debt from stable to negative, noting that the company could be hurt by the slowing economy.

But Natexis Bleichroeder analyst Jeffrey Shelton sees a buying opportunity. He upgraded Donnelley shares to a "buy" in mid-January, a move he said was a response to the stock's recent decline. "I felt the valuation was attractive," he said.

Shelton said he has become "a little more cautious" in the wake of Idearc's fourth-quarter results. His target price for Donnelley shares is $41.

On Monday Donnelley shares rose 75 cents to close at $19.58.

'Totally overblown'?

Ken Clark, publisher of YP Talk, an online industry newsletter in Holly Springs, sees the stock's recent swoon as "totally overblown."

"These companies aren't going to go away tomorrow," said Clark, who is a Donnelley shareholder.

Donnelley's policy is to not comment on its stock price, spokes-man Tyler Gronbach said.

But Gronbach said the company remains convinced that it has a winning hand with what it calls its "triple play" initiative -- selling ads in print and online, plus helping companies enhance their visibility on the Internet by boosting their rankings on Web searches.

"We still believe there remains a very strong opportunity with our print product," Gronbach said. "That is complemented by the digital opportunity we have built up in the past two years.

"We believe our competitive advantage is we have feet on the street ... [a 2,000-person sales force] that works with advertisers every day."

Donnelley demonstrated its confidence in December by announcing plans to buy back as much as $100 million of its stock.

Unfortunately for Donnelley, that money will buy many more shares today than when that announcement was made.