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# John Wiley & Sons Inc. Message Board

• leewalter2002 leewalter2002 May 14, 2003 3:50 AM Flag

## Valuation

This is a back of the envelope calculation using Yahoo's data (data may be wrong). The reason is to counter Morningstars contention that Wiley is worth 31 dollars per share or to merit 5 star rating.

The assumption below is that the investor wants a 12% average annualized rate of return on his investment.

Yahoo data (per share)

Book value--\$5.71
EPS--------\$1.23
Share Price--\$24.77

Assumptions-- Let's more than double Wiley's earnings per share to 3 dollars per share, and let's assume it can generate this level of profits for the next 30 years. The present value of these earnings (and we are assuming they are free cash flows... reality is that the free cash flows are smaller) at 12% gives us a value of \$24.17 per share. To this figure lets add one half of the book value which we will consider liquidation value (things such as goodwill are of no practical value or better yet, only of value if they can generate free cash flows into the future). So half of the book value is \$2.86 added to the \$24.17 we get \$27.03.

What to make of this. First, we more than double the current earnings. In reality it is going to take Wiley more than 11 years to do this assuming they can grow per share earnings at 8% per year. Second, we are using earnings per share number: a) they are unreliable from the standpoint that share repurchases will exaggerate this figure (no quantified gain in value) while decreasing the book value (again value gain or loss is not being measured). b) Free cash flow would be a better number to use, but for simplicity just assume its less per share than the reported earnings (real free cash flow and not the crap that analyst would have you believe). Lastly, we assumed 30 years of uninterrupted profits. The judgment has to be made as to what is more likely. Is it more likely that Wiley will suffer adverse business conditions or is it more likely that it will find itself in a boom. By default the analyst should opt for pricing the security based upon eventual adverse years over a 30 year time frame. You decide. Good luck. I'd like to see Morningstars analysis. Other than the superficial stuff they spew. Show us your assumptions Morningstar. Of course I've done a two minute analysis, if you guys want greater detail I will provide it.

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• If I listened to your advice I would have missed out on an almost double since your post. Good thing I didnt

• Is it now? Well, you know the old saw. Lies, damn lies, and statistics. I like using Quicken's Instrinsic Value calculator for quick and dirty calculations, and I find that using fairly simple and reasonable assumptions, it ends up being close to Morningstar's take more often than not.

Starting from:
Most recent yearly earnings: 77,400,000
Earnings Growth: Let's use your 8%.

It's far less than their 10 year growth rate of 24%, or even their 3 year growth rate of 10.5%, and marginally above the historical industry rate of 7%, which we can reasonably expect JW.A to beat over time.

Discount rate: At 0.49, it's beta has it historically to be less risky than the overall stock market. As to the future, who knows, but for the sake of argument, let's use an long term market rate of 10%.

Press Recalculate Instrinsic Value/Share

Churn churn churn. . .
\$32.72

http://www.quicken.com/investments/seceval/?cmetric=intrinsic&cursym=&csym=JW.A&
csym1=&csym2=&initearnec=77%2C400%2C000&egrrbtn=ec&egrdd=4&egrec=8&dcrrbtn=ec&dc
rec=10&dcrdd=2&p=JW.A

There's my two minute calculation.