John Wiley Is Positioning Itself for the Future

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John Wiley & Sons (NYSE: JW-A), Reed Elsevier (NYSE: RUK), and the Washington Post (NYSE: WPO) are three companies that should continue to benefit from the shift of economies based on industry and agriculture to ones relying on knowledge and information. Each of these companies has multiple classes of shares, which is common in the media and publishing industries, where one class has more voting power than another. Importantly, each company is currently in the process of shifting from print to digital.

Of the three companies, John Wiley is the smallest and the only one focused entirely on education, science and career development. It provides research journals and related products and services, as well as professional-development materials, and educational texts and services. However, a large portion of Reed Elsevier and Washington Post revenues are derived from similar sources, which makes the comparison between these three companies useful. For example, Reed Elsevier offers scientific, business, and legal materials and services, but also has significant risk solutions and exhibit businesses. The Washington Post derives about 55% of its revenues from its educational and career-related materials and services (via its well-known Kaplan subsidiary), with the remainder coming from cable TV, its newspaper, and TV broadcasting.

John Wiley's focus is entirely on education, science and career advancement. That, together with its its efforts to strengthen its position in its core competency, make it an interesting option. Also, its shares are relatively undervalued based on a number of measures, which further makes the case for investing in John Wiley.

Valuation and fundamentals

<table> <tbody> <tr> <td> </td> <td> <p><strong>JW-A</strong></p> </td> <td> <p><strong>RUK*</strong></p> </td> <td> <p><strong>WPO</strong></p> </td> </tr> <tr> <td> <p>Market capitalization</p> </td> <td> <p>$2.6B</p> </td> <td> <p>$28B</p> </td> <td> <p>$3.9B</p> </td> </tr> <tr> <td> <p>Price-to-earnings (est.)</p> </td> <td> <p>18</p> </td> <td> <p>15.3</p> </td> <td> <p>21.9</p> </td> </tr> <tr> <td> <p>Price-to-sales</p> </td> <td> <p>1.4</p> </td> <td> <p>2.8</p> </td> <td> <p>1</p> </td> </tr> <tr> <td> <p>Price-to-book-value</p> </td> <td> <p>2.6</p> </td> <td> <p>8</p> </td> <td> <p>1.5</p> </td> </tr> <tr> <td> <p>Price-to-CFO</p> </td> <td> <p>7.6</p> </td> <td> <p>12.2</p> </td> <td> <p>7.8</p> </td> </tr> <tr> <td> <p>Gross margin</p> </td> <td> <p>70%</p> </td> <td> <p>65%</p> </td> <td> <p>53%</p> </td> </tr> <tr> <td> <p>Operating margin</p> </td> <td> <p>11.3%</p> </td> <td> <p>22.2%</p> </td> <td> <p>3.6%</p> </td> </tr> <tr> <td> <p>Sales growth of last fiscal year vs. the year before</p> </td> <td> <p>-1.2%</p> </td> <td> <p>1.9%</p> </td> <td> <p>-2.7%</p> </td> </tr> <tr> <td> <p>International sales</p> </td> <td> <p>48.2%</p> </td> <td> <p>48.0%</p> </td> <td> <p>16.0%</p> </td> </tr> </tbody> </table>

Source: CapitalIQ, Reuters, SEC filings, author's calculations. CFO – cash flow from operations. 1£=$1.61

*The U.S. equivalent of the London shares.

As seen from the table above, John Wiley is the company in the middle on a number of valuation measures. Based on price to cash flow from operations (CFO), it is undervalued compared to Washington Post and Reed Elsevier, which is an important measure for mature companies with limited growth. Also, John Wiley derives a significant portion of revenues from outside of the United States, which provides better economies of scale and exposure to development in the global science, education, and professional areas. John Wiley has some of the largest gross margins, while its operating margin is significantly lower, largely due to the company's restructuring activities and investment in digital technologies. Reed Elsevier's operating margin has risen steadily in the past few years and a reversal of this trend may be coming, given that the company has the largest exposure to Europe, which is developing legislation toward open access of academic materials, which will negatively affect the company. Finally, the Post's margins have been declining mostly due to a significant drop in revenues from its advertising segments as newspaper circulation continues to decline.

Recent developments

Without a doubt, the publishing and media companies are undergoing one of the largest transformations to affect the industry. As a result, John Wiley is actively divesting assets and buying companies in order to adapt better to the new business environment. The major transactions the company made in the past year and a half include:

  • Sales:

    • Nautical consumer publishing titles – sold in May '13 to Fernhurst Books.

    • Selected non-fiction back-list titles from Wiley Canada – sold in Apr. '13 to HarperCollins Canada.

    • 1,500 pet, craft, and general-interest consumer titles – sold in Apr. '13 to Turner Publishing.

    • Its cookbook collection, Webster’s New World Dictionary and CliffsNotes – sold in Nov. '12 to Houghton Mifflin Harcourt.

    • The Frommer's travel guides – sold in Mar. '12 to Google.

  • Acquisitions:

    • Acquired the assets of FIZ Chemie Berlin (online database products for chemists) in Jan. '13.

    • Acquired in Dec. '12 from Stevenson, six newsletters and a number of online events and special reports in the area of fundraising, nonprofit management, and communications.

    • Acquired in Nov. '12 – Efficient Learning Systems (provider of e-learning solutions in professional finance and accounting) for $24 million.

    • Acquired in Oct. '12 – (online education services provider) for $220 million.

    • Acquired in May '12 – Harlan Davidson (higher education publisher).

    • Acquired in Mar. '12 – Structurae (online structural and civil engineering database)

As seen from the above acquisitions, Wiley is divesting its consumer publishing titles while acquiring businesses in the scientific, higher education, and professional areas with a digital characteristics. Also, the company is partnering with a number of professional and scientific societies. For example, it entered into a five-year contract with the CFA Institute in Feb. '12 to provide publishing materials for the CFA (Chartered Financial Analyst) and CIPM (Certificate in Investment Performance Measurement) programs.

Similarly, Reed Elsevier is acquiring smaller companies. During the past 18 months it acquired Mendeley (London-based online research management and social collaboration platform), ExitCare (U.S.-based provider of patient education and discharge instructions), EDIWatch (U.S.-based provider of fraud, waste and abuse technology solutions to the healthcare-payer industry), Atria (Denmark-based software provider that helps researchers manage and improve research results), Law360 (U.S.-based online provider of legal news and analysis for business lawyers), QUOSA (provider of life sciences content management and workflow-productivity solutions), and two event-service companies in Australia and Brazil. At the same time, it divested of a number of businesses including Totaljobs (recruitment job boards), MarketCast (provider of research and analysis to the entertainment industry and part of RBI), Variety (magazine), RBI (Reed Business Information) Australia, and RBI Spain.

Finally, the Washington Post made a number of unrelated acquisitions including the purchase of Forney (supplier of products and systems that control and monitor combustion processes, or as the WSJ called them – boilers) and Celtic Healthcare, a home-care and hospice service provider. At the same time, it disposed of a few Kaplan (education) businesses, Avenue100 Media Solutions and The Herald, a daily and Sunday newspaper headquartered in Everett, Wash.


Companies such as Wiley have to adapt quickly in the gradual transition to e-books and online learning. While traditional books and education are not likely to disappear, they are likely to continue to decline. Importantly, e-books and online education are more profitable (e-books cannot be copied or re-sold and online education requires only an internet connection). However, they do require initial investment and companies such as Wiley and Reed Elsevier are realizing this and taking steps to provide these products and services. More than the other two, Wiley seems to be more focused on the educational, career, and scientific markets and has larger exposure to markets outside the U.S. and Europe. Also, its shares are attractively priced on a number of measures. Investors looking to gain exposure to the growing information and knowledge-based economies should consider Wiley.

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Delian Naydenov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!

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