Christmas Countdown (2013)
The second selection in our annual countdown is something of a surprise, John Wiley & Sons (JW-A).
During times when we seem closer to Fahrenheit 451 than not … in days when some of our favorite bookstores (e.g. Border’s) are shuttering … and when the mainstream media decries the conversion from print media to all things tablet de digital — there may be some contrarian method to the madness of a bookish selection.
We were skeptical when JW-A turned up in our Top Tenth of The Top Percentile screens that power the Core Diem demonstration portfolio over the last couple of days — but after a close look and noting the recent price reduction, we’re thinking open arms … much like a good book and a fireplace.
Business Description
John Wiley & Sons, Inc. (JW-A) engages in the publishing of print and electronic products, providing content and digital solutions to customers worldwide.
The company operates through three segments: Scientific, Technical, Medical & Scholarly, Professional/Trade and Global Education. The Scientific, Technical, Medical & Scholarly segment provides content and content-enabled digital services for the scientific, technical, medical and scholarly communities worldwide, including academic, corporate, government and public libraries; researchers; scientists; clinicians; engineers and technologists; scholarly and professional societies; and students and professors. Its products include journals, books, major reference works, databases, clinical decision support tools and laboratory manuals and workflow tools. The Professional/Trade segment acquires, develops and publishes books, workflow solutions, certification and training services and other information services in the subject areas of business, technology, architecture, cooking, psychology, professional education, travel, health, consumer reference and general interest.
It products are developed for worldwide distribution through multiple channels, including major chains and online booksellers, independent bookstores, libraries, colleges and universities, warehouse clubs, corporations, direct marketing and websites. The Global Education segment publishes educational content for two and four-year colleges and universities, for-profit career colleges, advanced placement classes, as well as secondary schools in Australia. It delivers its content, tools and resources to students, faculty and institutions principally through college bookstores and online distributors, with customers having access to content in multi-media formats as well as the traditional textbook. John Wiley & Sons was founded in 1807 and is headquartered in Hoboken, NJ
Business Model Analysis
When you’ve been printing books for over 200 years, you probably know a thing or two about where, when and how to sell them.
The last several years (and a couple years of analyst consensus forecasts) build a steady trend in the 3-4% growth range. If Value Line is right about the 3-5 year forecast, the figure favors the 4% end of that range.
The narrowing of the gap between the top and bottom lines is our first hint of expanding profitability. Apparently after 200 years — they’re also figuring out ways to discover new means of optimization.
The Value Line low total return forecast (LTR) shown here is 15% but that was based on a stock price of $43.20 (11/9/2012). With the price now at $37.40, the adjusted LTR is closer to 20.6%.
Profitability Analysis
The overall profitability trend borders on astonishing considering the economic/competitive environment and market that Wiley wakes up to every day. In this closer look, we see the pressures on net margin results during the Great Recession (2008-2009) and the continued optimism of Value Line in their 3-5 year forecast.
All in all, the trend is pretty powerful and could drive higher P/E ratios going forward. Fahreinheit 451, indeed.
Expecting Alpha 
[…] John Wiley & Sons (JW-A) PAR = 17.5%, Quality = 87.5 […]