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Why Oppenheimer Is Buying Scholastic Corp

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  • Oppenheimer initiated coverage of Scholastic Corp (NASDAQ: SCHL) with an Outperform rating on Monday.
  • The firm set a $50 price target on the stock.
  • Shares of Scholastic Corp were up more than 4 percent on Tuesday.

In a report issued Monday, Oppenheimer analysts Ian Zaffino and Richard Faulkner initiated coverage of Scholastic Corp with an Outperform rating and $50 price target, arguing that the company offers a “catalyst-rich investment opportunity,” supported by a cash-rich balance sheet, an impending real estate monetization plan, and a robust free cash flow profile.

According to the note, the company boasts an alluring ~10 percent unlevered FY17E FCF yield and has a strong, mid-single-digit revenue growth profile. The analysts think it can return roughly $400 million (almost 30 percent of its market cap) of cash over the upcoming 12 months using existing cash ($8 per share), income from its potential real estate monetization (about $7 per share) and free cash flow.

Related Link: Can You Count On Children's Media In The Digital Age?

Below are a few points central to Oppenheimer’s thesis:

  • Scholastic Corp is a leader in the school book market, one of the strongest markets left in the print industry
  • The company “enjoys a stable revenue stream in children’s books, owing to its entrenched position in schools, strong distribution network and ‘sticky’ customer base.”
  • The Education segment could drive substantial growth as school curriculums expand beyond textbooks.
  • The analysts believe the company could sell three stories of its 557 Broadway headquarters in Manhattan for more than $350 million, resulting in almost $250 million or $7.31 per share in after-tax proceeds.
  • The balance sheet is overcapitalized. This means considerable capital returns are likely, especially given Scholastic’s track record.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Latest Ratings for SCHL

DateFirmActionFromTo
Sep 2020StifelMaintainsHold
Sep 2018StifelMaintainsHoldHold
Jul 2018StifelMaintainsHoldHold

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View the Latest Analyst Ratings

 

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Posted-In: Ian Zaffino Oppenheimer Richard FaulknerAnalyst Color Price Target Initiation Analyst Ratings

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