Scholastic Corp. – Value Analysis (NASDAQ:SCHL) : October 30, 2017

Capitalcube gives Scholastic Corp. a score of 53.

Our analysis is based on comparing Scholastic Corp. with the following peers – Pearson PLC Sponsored ADR, John Wiley & Sons, Inc. Class A, Meredith Corporation Class B, RELX PLC Sponsored ADR, Educational Development Corporation, News Corporation Class A, Walt Disney Company, RELX NV Sponsored ADR, Houghton Mifflin Harcourt Company and S&P Global, Inc. (PSO-US, JW.A-US, MDPEB-US, RELX-US, EDUC-US, NWSA-US, DIS-US, RENX-US, HMHC-US and SPGI-US).

Investment Outlook

Scholastic Corp. has a fundamental score of 53 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It trades at a lower Price/Book multiple (1.03) than its peer median (2.61).
  • The market expects faster earnings growth from SCHL-US than from its peers and also a turnaround in its current ROE.
  • SCHL-US has relatively low net profit margins while its asset efficiency is relatively high.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • SCHL-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While SCHL-US‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • SCHL-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

SCHL-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 1.11% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 22.86%), and a well-cushioned interest coverage level of 37.54x, SCHL-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 10 peers for the company have an outstanding debt balance.

SCHL-US has maintained its Quick & Able profile from the recent year-end.

  • SCHL-US‘s interest coverage is greater than (but within one standard deviation of) its five-year average interest coverage of 22.67x.
  • Though its interest coverage has remained relatively stable at 37.54x compared to 2017, its peer median has increased to 15.15x from 13.04x during this period.
  • Interest coverage fell 2.11 points relative to peers.
  • SCHL-US‘s debt-EV has increased 0.52 percentage points from last year’s low but is still below its five-year average debt-EV of 4.04.
  • The increase in its debt-EV to 1.11% from 0.59% (in 2017) was also accompanied by an increase in its peer median during this period to 22.86% from 19.68%.
  • Relative to peers, debt-EV fell 2.65 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Pearson PLC Sponsored ADR 32.37 1.62 2.96 26.53
John Wiley & Sons, Inc. Class A 15.23 0.59 15.3 76.17
Meredith Corporation Class B 22.86 0.74 17.92 40.11
RELX PLC Sponsored ADR 23.73 0.46 9.85 37.44
Educational Development Corporation 39.96 1.48 6.34 25.77
News Corporation Class A 5.71 1.56 No interest exp 175.94
Walt Disney Company 11.59 0.93 22.44 60.45
RELX NV Sponsored ADR 27.29 0.46 9.85 37.44
Houghton Mifflin Harcourt Company 34.9 1.19 -2.62 15.33
S&P Global, Inc. 8.43 1.52 15.15 55.23
Scholastic Corporation 1.11 2.12 37.54 1728.57
Peer Median 22.86 1.19 15.15 40.11
Best In Class 1.11 2.12 No interest exp 1728.57

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Company Profile

Scholastic Corp. engages in the publication and market of children’s books, magazines, and teaching materials. It operates through the following segments: Children’s Book Publishing and Distribution; Educational; and International. The Children’s Book Publishing and Distribution segment involves in the publication and distribution of children’s books, e-books, media, and interactive products. The Educational segment supplies children’s books, magazines, supplemental classroom materials, and print and on-line reference, and non-fiction books to schools and libraries. The International segment offers products and services outside the United States by the firm’s international operations, export, and foreign rights businesses. The company was founded by Maurice R. Robinson in 1920 and is headquartered in New York, NY.


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