Barnes & Noble (BKS) Gains for Second Day Following NOOK Spin-Off News

After gaining 5.3% Wednesday amid news it will spin-off its NOOK business, shares of Barnes & Noble (NYSE: BKS) are up another 5% today on continued enthusiasm about the split. Wall Street was positive on the move. Maxim Group John Tinker analyst said the split is "a critical step to unlocking the value of the cash-generating retail segment and growing the College segment while rationalizing the NOOK hardware and content business."

Tinker estimates the retail business should trade at ~4x EBITDA on a standalone basis and possibly higher given the substantial FCF. They currently estimate that the College business should trade anywhere from our assumed 4x multiple to 7x, should growth trends continue at a pace similar to this quarter. It could trade perhaps even higher if digital education platform Yuzu gains traction, given Chegg (CHGG) is trading at 22x 2015 EV/EBITDA. They value the NOOK content business at 2.5x FY14 EBITDA estimate of $124M or $311M. They have a low valuation for the NOOK content business, and assign no value to the NOOK hardware business given the difficulties to date. There is potential major upside if the NOOK Samsung starts to sell this summer, and the $240M content sales (estimated at a 50% operating margin) begin to show growth.

With a strategy in focus, the Tinker reiterated a Buy rating and $32 price target on Barnes & Noble.

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