Insiders Are Bullish About This Publishing Company
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According to a filing with the SEC, Bradford Wiley II, who serves on the Board of Directors at John Wiley & Sons (NYSE: JW-A), bought 12,000 shares of stock on December 18th at an average price of $37.15 per share. We like to track insider purchases because the benefits of diversification suggest that insiders should avoid buying their company’s stock; if they are buying anyway, it is at least somewhat likely that they are very confident in the company’s prospects. In fact, studies show that on average- though not always- stocks bought by insiders beat the market (learn more about studies on insider trading). Wiley now owns about 87,000 shares in the publishing company directly, and a related LLC owns over 8 million shares.
Wiley’s second fiscal quarter ended in October, with the company seeing a slight decline in revenue compared to the same period in the previous fiscal year. Operating costs were about the same if we strip out the effects of an impairment to consumer publishing and gains realized by the company on selling its travel publishing unit. This resulted in a 15% decrease in net income, which was actually an improvement from the results in the first quarter.
At a market capitalization of $2.3 billion, John Wiley & Sons Inc trades at 12 times trailing earnings. That’s a fairly low earnings multiple, but as we’ve seen the company has experienced declines in net income and we don’t feel very optimistic about the publishing business. Wall Street analysts expect the company to do better on the bottom line in the next fiscal year, and so the forward P/E is 11. If Wiley can achieve even modest earnings growth, it could prove undervalued, but we are skeptical.
Renaissance Technologies, founded by billionaire Jim Simons, had a small position in John Wiley & Sons Inc at the end of the third quarter (find Renaissance's favorite stocks). The largest position which appeared in our database of 13F filings belonged to Dreman Value Management; the fund, which is managed by David Dreman, owned about 350,000 shares. Billionaire Steve Cohen’s SAC Capital Advisors closed its position in Wiley between July and September (see what stocks Cohen was buying instead).
Pearson (NYSE: PSO) is Wiley’s closest peer, and we can also compare it to publishers The McGraw-Hill Companies (NYSE: MHFI) and Scholastic (NASDAQ: SCHL) as well as Thomson Reuters (NYSE: TRI), which is a provider of technical and financial information as well as news. Pearson trades at 13 times forward earnings estimates, and this figure seems to incorporate an expectation that earnings will continue declining (net income was down 28% in the second quarter of the year versus a year earlier). We think that we’d avoid it as well. The market is actually showing a liking to McGraw-Hill: thanks to a 25% increase over the last year, its trailing P/E multiple is 18. However, we’re not sure that it warrants this valuation: while its revenue actually increased in its most recent quarter compared to the same period in the previous year, there was a double-digit percentage decline in net income.
Scholastic and Thomson Reuters have similar valuations to these other peers, at least in terms of forward earnings estimates: their forward P/Es are in the 12-14 range, and again while low we’d like to see at least some improvement in earnings at that level. Scholastic’s numbers are down, we’re particularly wary of children’s publishing in an increasingly digital environment, and the stock is a popular short- that’s enough to keep us away. Thomson Reuters actually reported higher earnings last quarter than a year earlier, though revenue was down. It at least might be worth a closer look.
This doesn’t look like a good insider purchase to imitate. We don’t like the industry and while the stock is cheap in terms of historical performance Wiley’s financials are down and it would need to reverse that trend in order to be a good value.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of The McGraw-Hill Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!