After watching the debate on Books-A-Million, I thought I should add my report on Barnes & Noble (BKS), which I think it is undervalued.
As for Barnes & Noble
One sector that has certainly fallen from grace since the tech bubble is one of the brick and mortar booksellers. The extremely rapid expansion of Amazon.com, shortly after its founding 15 years ago, followed by the arrival of e-book reader and, more recently, the IPAD, means the beginning of the end for bookstore chains in the opinion of many.
Analysts often compare the industry to that of CD, DVD and administrative officers, administrative and operational. Companies like Barnes & Noble, Borders Group Books-A-Million have any significant decline in its share price over the last 5-10 years.
I’m going into some thoughts on macro trends later, but for now, we, the AM look at the upside potential that an investment in the dominant: Barnes & Noble.
Since its spin-off of GameStop video game seller in 2004, BKS had seen its sales grow at an average rate of 3.5% through fiscal year 2009, when it rose from U.S. $ 5410.8 to $ 5121.8 M M.
While books are considered discretionary spending, many began to wonder whether this decrease was actually secular nature rather than a simple cyclical downturn.
However, while operating income declined significantly last year with sales, BKS continues to accumulate a considerable amount of free cash flows.
While part of the decline in sales is probably due to the secular increase in sales of electronic books and books through online stores, the market seems to be too pessimistic when it comes, Äúbrick-and-mortar retailers AU.
Valuation
(With Bruce Greenwald, the AM method EPV)
It would be reasonable to estimate that, even when sales continued to decline, BKS would finally be able to maintain sales of at least $ 4,500 M through its hypermarkets and bn.com and $ 1,500 through its recent acquisition booksellers University, for A total of $ 6,000 M.
Last year, BKS produced an operating margin of 2.8%, its worst year in a long time.
Stay conservative, we, the AM take BKS was only able to maintain an EBIT margin of 2.5% in the future on sales of $ 6B. Additionally, one could assume that in the past, 10% (~ $ 135 million) from BKS, SG & A expenses years have served only for the purpose of growth through new stores and the development of its electronic book reader Shop online.
It is also noteworthy that during the Q4 2008 earnings call, management stated that only $ 25 million of the $ 125 million in capital expenditures in 2009 will be screened for maintenance while the rest was for new stores and initiative.
Again, to be conservative, I will assume that $ 55M/year would be necessary in the long run to keep the brand and shops at Barnes & Noble $ 15M/year side and more on the side B & N College Booksellers.