Morningstar | Publishing Woes Temper Short-Term Outlook but Obscure Wiley's Long-Term Strengths; Shares Attractive
Although wide-moat John Wiley's soft third-quarter results will lead us to cut our $55 fair value estimate by a high-single-digit percentage, we believe the shares' midteens swoon after the release underestimates long-term strengths. We still expect low-single-digit annual revenue growth and low to mid-teens adjusted operating margins, on average, through fiscal 2023.Year to date, revenue slid 1% against an 11% adjusted operating margin. Management reaffirmed its full-year constant-currency sales and earnings guidance for flat revenue and a mid-single-digit adjusted EPS decline, excluding its Learning House acquisition. Our preannouncement forecast included the deal; when adjusted, our estimates were broadly in line, though we are skeptical, as management's implied fourth-quarter profitability improvement seems optimistic (year-to-date constant-currency adjusted EPS down 18%).
Publishing (34% of fiscal 2018 sales) lagged, with sales falling 8% year to date (14% in the third quarter). Our full-year target was more optimistic at a 4% dip. Book sales, particularly higher education, continue to shrink as rentals and nonbook alternatives expand. We expect this to persist, forecasting a mid-single-digit annual slide in Wiley's book and reference revenue through fiscal 2023.
Wiley elaborated on its January agreement with Projekt Deal (a consortium of 700 German academic institutions), which gives members access to Wiley's content library and open-access publishing rights in its journals for a yearly fee. We are encouraged by management's comments that open-access and subscription margins are comparable, adding to our confidence that Wiley's journals unit (52% of fiscal 2018 revenue) will perform even as funding mechanisms change. We believe journals and Wiley's emerging solutions offerings will offset publishing's woes long term and suspect that prevailing sentiment underestimates the power of Wiley's content library and deep, enduring client relationships.
John Wiley & Sons is a global research and learning company. Co. has three segments: Research segment, which provides scientific, technical, medical, and scholarly journals, as well as related content and services to libraries and individual researchers, among others; Publishing, which provides scientific, professional, and education books and related content in print and digital formats, test preparation services and course workflow tools, to libraries, corporations, students, professionals, and researchers; and Solutions, which provides online program management services for higher education institutions and learning, development, and assessment services for businesses and professionals.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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