NEW YORK, NY / ACCESSWIRE / February 18, 2016 / SeeThruEquity, a leading independent equity research and corporate access firm focused on smallcap and microcap public companies, today announced it has initiated coverage on Barnes & Noble, Inc. (NYSE: BKS) with a Price Target of $18.75.
The report is available here: BKS Initiation Report. SeeThruEquity is an approved equity research contributor on Thomson First Call, Capital IQ, FactSet, and Zack's. The report will be available on these platforms. The firm also contributes its estimates to Thomson Estimates, the leading estimates platform on Wall Street.
With headquarters in New York, NY, Barnes & Noble is a leading retailer of books, games, toys, DVDs and music. The company has a well-established, premiere retail brand with a long and storied history as one of the leading book retailers in the United States. Barnes & Noble has faced significant challenges over the last decade as the company has struggled to compete with technology disruption and aggressive pricing in its industry. We believe these challenges have created an environment of overly negative market sentiment for Barnes & Noble and its shares. The company recently spun off its college bookstore division, which trades under the symbol BNED, and we have taken the opportunity to take a fresh look at the underlying retail business. Indeed, despite the rise of Amazon.com as the nation's largest book retailer and the emergence of e-books, Barnes & Noble remains one of the best known brands in retail, and its network of 640 retail locations is an attractive differentiating factor versus predominantly digital competitors - in addition to providing a stable stream of cash flow. We view Barnes & Noble as a deeply undervalued special situation with a top flight leadership team heavily invested in the company, which has several potential catalysts ahead, as the company benefits from new merchandizing at the core retail stores and reduces the losses in the NOOK division.
"We believe that the investing community has focused too much attention on the high costs associated with the NOOK strategy - the majority of which appears to be in the rearview mirror. NOOK has admittedly had disappointing results, but the billion-plus dollars invested in the NOOK division has already taken place, and losses in the unit have narrowed significantly. Importantly, we note that Barnes & Noble leadership is highly invested in the company and has demonstrated a willingness to partake in shareholder-friendly activities, such as the recent spinoff of BNED, Founder Leonard Riggio's recently increased stake to 17.1% after purchasing 1mn shares, resumption of a quarterly dividend following the spinoff and the new stock repurchase program for up to $50mn of its common shares," stated Ajay Tandon, CEO of SeeThruEquity. "We are initiating coverage with a 12-month price target of $18.75 per share."
Additional highlights from the report are as follows:
Compelling value in core retail operations
Following the spinoff of the college bookstore business (BNED), Barnes & Noble (BKS) offers deep value underpinned by loyal customers frequenting its core network of 640 retail locations. Indeed, the physical book business has stabilized, and BKS management has also had success with new merchandizing strategies in non-book categories, leading to comparable store results that were positive for the second year in a row - up 1.6% YoY in this holiday season. At the recent price of $9.22, BKS offers compelling value, yielding north of 7% and trading at 4.6x FY16E EBITDA of $194mn. Importantly, BKS EBITDA would be substantially higher if the company were to shed / curtail losses in the NOOK division, which had EBITDA losses of approximately ($84mn) in FY15. We believe a successful resolution of NOOK, whether coming from improving results or a strategic transaction, could add nearly $5 per share in value immediately to BKS, assuming a 4.5x EBITDA multiple on the $84mn in core EBITDA no longer lost by NOOK.
Top flight management returning value through buybacks and dividend
In our view, one of the most attractive attributes to Barnes & Noble is its savvy and experienced leadership. BKS is led by Founder and Chairman Leonard Riggio, who founded GameStop as well as Barnes & Noble, and new CEO Ronald Boire, who brings deep experience from turnaround retail situations, including Sears Canada, Best Buy, Toys R Us, and Brookstone. Barnes & Noble's leadership team has articulated what we see as a well- conceived, "omni-channel" merchandising strategy that leverages the company's core strength – it's attractive stable of 640 retail locations - in combination with convenient technology applications from bn.com and the NOOK digital platform to create a rich customer experience. Importantly, Riggio is highly invested in the company, with 17.1% ownership following a 1mn share purchase in BKS after the spinoff of BNED, and Barnes & Noble's management has demonstrated a willingness to pursue shareholder friendly actions, including the reinstatement of a quarterly dividend and a sizeable $50mn share repurchase program.
Initiate coverage with a price target of 18.75
Our analysis indicates a fair value estimate of $18.75 per share. We view Barnes & Noble as a deeply undervalued special situation with a top flight leadership team and several potential catalysts as the company benefits from new merchandizing at the core retail stores and reduces the losses in the NOOK division. Moreover, with $50mn share buyback in place and a dividend yield eclipsing 7%, we see an attractive situation for investors while they await the broader turnaround. If achieved, the price target of $18.75 represents potential upside of 131.8% from the recent price of $9.22.
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About Barnes & Noble, Inc.
Barnes & Noble, Inc. (BKS) is a Fortune 500 company, the nation's largest retail bookseller, and a leading retailer of content, digital media and educational products. The Company operates 640 Barnes & Noble bookstores in 50 states, and one of the Web's premier e-commerce sites, BN.com (www.bn.com). The NOOK Digital business offers a lineup of popular NOOK® tablets and eReaders and an expansive collection of digital reading and entertainment content through the NOOK Store®. The NOOK Store features more than 4 million digital books in the US (www.nook.com) and UK (www.nook.co.uk), plus periodicals, comics, apps, movies and TV shows, and offers the ability to enjoy content across a wide array of popular devices through Free NOOK Reading Apps™ available for Android™, iOS® and Windows®.
About SeeThruEquity
SeeThruEquity is an equity research and corporate access firm focused on companies with less than $1 billion in market capitalization. The research is not paid for and is unbiased. The company does not conduct any investment banking or commission based business. SeeThruEquity is approved to contribute its research to Thomson One Analytics (First Call), Capital IQ, FactSet, Zacks, and distribute its research to its database of opt-in investors. The company also contributes its estimates to Thomson Estimates, the leading estimates platform on Wall Street.
For more information visit www.seethruequity.com.
Contact:
Ajay Tandon
SeeThruEquity
info@seethruequity.com
