Morningstar | Soft Profitability to Begin Wiley's Fiscal 2019 Does Not Alter Our Long-Term Outlook
With wide-moat Wiley's first-quarter profitability sluggish, we plan a mid- to high-single-digit percentage cut for our $63 per share valuation. Still, we expect near-term costs (elevated by investments in new products, growth markets, and efficiency improvement efforts) to yield long-term performance, and still foresee low-single-digit annual top-line growth and midteens adjusted operating margins, on average, through fiscal 2023.Wiley posted 1% revenue growth against a 7% adjusted operating margin (down nearly 300 basis points from fiscal 2018's opening period). Management reiterated its constant-currency fiscal 2019 guidance, calling for flat revenue and a mid-single-digit adjusted EPS dip. We had been slightly more optimistic from a profitability standpoint, expecting flat revenues to yield to a low-single-digit adjusted EPS decline; the first quarter should lead us to temper our target.
We have contended that Wiley would need to make investments to execute its diversification into service-oriented businesses that provide recurring revenue and impose switching costs. We still believe the destination is worth the journey; while we contend that Wiley's array of content should drive steady journals results (slightly more than half of revenue), tight library budgets limit growth needed to offset challenging conditions in book and reference publishing (about a quarter of revenue) as print works fade. Though first-quarter revenue from Wiley's course workflow product slid precipitously (36%), we expect much of the dip to reverse as the latest version of the product is introduced. Moreover, 11% growth in education services (above our 8% full-year estimate) aligns with our view that Wiley's bespoke online program management tools should gain currency with educational institutions looking to add digital offerings efficiently. We anticipate such services will stabilize revenue while imposing switching costs as Wiley becomes more embedded in client processes.
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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