Pearson PLC (NYSE:PSO) is Wiley’s closest peer, and we can also compare it to publishers The McGraw-Hill Companies, Inc. (NYSE:MHP) and Scholastic Corp (NASDAQ:SCHL) as well as Thomson Reuters Corporation (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.