Barnes & Noble (BKS) is a Cheap Stock Although Q4 Numbers Could be Unsurprising Weak - Analyst

June 7, 2013 12:31 PM EDT Send to a Friend
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Price: $20.72 +1.77%

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    1 Buy, 5 Hold, 3 Sell

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Maxim Group retail analyst John Tinker reiterated a Buy rating and $30 price target on Barnes & Noble (NYSE: BKS) ahead of Q4 results on June 25th, although he expects numbers may be worse than expected given the potential takeover of the Retail division by Chairman Leonard Riggio.

"It would not be surprising to us if the quarterly numbers are worse than expected as Chairman Riggio will be looking to pay as little as possible," Tinker shocking said.

However, investors need to look beyond the near-term given that shares are downright cheap, he also said.

"If the potential deal does not materialize, we believe that BKS is inexpensive, as closing the loss-making NOOK division but keeping the Retail and College divisions suggest that the stock is trading at 2.8x EV/EBITDA," Tinker states.

The firm is estimating 4Q revenues of $1.396B (up 1.2% y/y) and an EBITDA loss of $45.7M, compared to the consensus revenue and EBITDA loss estimates of $1.326B and $35.7M. They are estimating Retail segment revenues of $947M (down 10% y/y) and EBITDA of $33.2M (down 50% y/y), as well as College segment revenues of $223M (down 2% y/y) and EBITDA of $2.2M. For the Nook segment, they estimate revenues of $225M (up 127% y/y) and an EBITDA loss of $81M.

Tinker also notes renewed investor interest in retailers like Best Buy (NYSE: BBY), and Brick-and-mortar stores have been regaining allure, with companies like Samsung trying to emulate Apple's retail strategy by placing 1,400 kiosks in the BBY stores.

Barnes & Noble is cheap on a EV/EBITDA basis when compared to Best Buy and its historical average. Historically, multiples have been about ~5x for the retail business and BBY is currently trading at ~5x consensus EV/EBITDA, the analyst said.

For an analyst ratings summary and ratings history on Barnes & Noble click here. For more ratings news on Barnes & Noble click here.

Shares of Barnes & Noble closed at $20.90 yesterday.


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