Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Huge Potential Upside for Barnes & Noble, Inc. (BKS)

Recently, Barnes & Noble, Inc. (NYSE:BKS) has popped up as much as 11.5% to more than $15 per share in one trading day, thanks to its chairman’s intention to make an offer for its bookstores. It was reported chairman Leonard Riggio was solely interested in buying out the book retail business, not the e-book division NOOK. How much is Barnes & Noble worth? What price might the chairman offer for its retail arm? Let’s dig deeper.

Barnes & Noble, Inc. (NYSE:BKS)Business Snapshot

Barnes & Noble is considered the largest booksellers in the US. As of April 2012, Barnes & Noble operated nearly 1,340 bookstores in 50 states, including nearly 650 bookstores on college campuses, with about 690 stores under the Barnes & Noble Booksellers trade name. Barnes & Noble, Inc. (NYSE:BKShas three main business segments: B&N Retail, B&N College and NOOK. The majority of its revenue, more than $4.85 billion, or 68% of the total revenue, was generated from the B&N Retail segment. B&N College ranked second with $1.74 billion in revenue in 2012, while NOOK contributed $933.5 million, or 13.1% of the total sales. While B&N Retail and B&N College have generated profits of $154.4 million and $70.6 million, respectively, NOOK has produced a huge loss of more than $286 million. Thus, in 2012, Barnes & Noble reported an overall operating loss of $61.3 million.

A Current Market Price is Quite Cheap

In April 2012, Microsoft Corporation (NASDAQ:MSFT) agreed to invest $605 million over five years in the newly established subsidiary NOOK Media, which includes the NOOK digital device, digital content, and college bookstore businesses. Initially, Microsoft would invest $300 million, giving it a 17.6% stake in NOOK Media. In the next five years, Microsoft committed to invest another $305 million. As Microsoft had $68.3 billion in cash, this investment represented only 0.1% of its total cash on hand. With its huge amount of cash, Microsoft could reach $39 per share if it applied David Einhorn’s preferred stock distribution idea. At the current trading price of $27.40 per share, the market is valuing Microsoft at nearly 6.1x EV/EBITDA. Following Microsoft, Pearson acquired a 5% stake in NOOK Media for $89.5 million. Thus, Microsoft and Pearson valued NOOK Media in the range of $1.7 billion – $1.8 billion.

In April 2012 the Anderson family, a controlling shareholder of Books-A-Million, Inc. (NASDAQ:BAMM), offered to acquire the company at $3.05 per share, with a total transaction worth $48.8 million. The deal valued Books-A-Million at around 10% of sales. If the same method were applied to the valuation of the B&N Retail segment, B&N Retail might be worth about $485 million. Analysts estimated that B&N Retail’s value would be in the range of $485 million – $1 billion.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.