2023-07-04 04:29:13 ET
Summary
- John Wiley & Sons posted a decline in revenue for Q4 FY23 and FY23 due to poor performance in its research and academic segments, with disruptions in Hindawi publishing and lower demand in education cited as key reasons.
- WLY stock is currently overvalued with a forward ratio of 2.16x and a P/E forward ratio of 16.17x, both higher than the sector average. The company's revenue guidance for FY24 is also lower than FY23, indicating expected financial struggles.
- Given the poor performance, weak guidance for FY24, and potential ongoing issues, I assign a hold rating on WLY.
John Wiley & Sons ( WLY ) is a research and education company. They operate in three segments: Academic, Research, and Talent. They provide scientific, technical, and scholarly journals, digital courseware, and various other services to libraries, students, and researchers. WLY recently posted the Q4 FY23 and FY23 results. I will analyze their quarterly and annual results and talk about the valuation in this report. I think WLY doesn’t have the potential to deliver anything to its investors in FY24. Hence I assign a hold rating on WLY.
Financial Analysis
WLY recently posted its Q4 FY23 and FY23 results . The revenue for Q4 FY23 was $ 526.1 million, a decline of 3.5% compared to Q4 FY22. I believe poor performance in its research and academic segment was the main reason behind the revenue decline. The revenues from the research segment declined by 6% in Q4 FY23 compared to Q4 FY22. I believe the decline was mainly due to the lower article volume and disruption of Hindawi publishing. The revenues from the academic segment declined by 3% in Q4 FY23 compared to Q4 FY22. I believe a decline in the academic publishing revenue, which was caused by declines in the print course material, was the major reason behind the revenue decline in the academic segment. The net income for Q4 FY23 was $68.3 million, a rise of 58.4% compared to Q4 FY22. I believe aimed restructuring savings and careful expense control, which led to $18 million in savings in Q4 FY23, was the main reason behind the rise.
Now talking about the annual results. The revenue for FY23 was $2 billion, a decline of 3% compared to FY22. I believe the major reason behind the revenue decline was the lower demand in education and the disruption of Hindawi publishing. The net income for FY23 was $17.2 million compared to a net income of $148.3 million in FY22. In my opinion, the quarterly and annual results of WLY were poor. The Hindawi publishing pause, which was one of the major reasons behind their underperformance in FY23, happened in the second half of FY23 and occurred due to a research integrity issue that is expected to continue to harm the company’s financials in FY24. The management has also stated that they expect their revenue growth to be hampered in FY24 due to this issue which I believe is a matter of concern because we might continue to see a poor financial performance by WLY in FY24. Due to this, we might see an adverse effect on its share price.
Technical Analysis
WLY is trading at the $34 level. Above is the monthly chart of WLY, and I believe the price action formed here is concerning. The stock has broken the structure of higher highs and higher lows and made a lower high which is a bearish sign. Right now, the stock is at a crucial level; if it breaks the $30 level, then a new lower low will be made, which might confirm that the stock might go into a downtrend. Hence the $30 level becomes a crucial zone, so in my opinion, one should avoid trading in the stock due to the uncertainties and wait for some time to get a clear picture.
Should One Invest In WLY?
Talking about WLY’s valuation. WLY has a PEG [FWD] ratio of 2.16x compared to the sector ratio of 1.65x and has a P/E [FWD] ratio of 16.17x compared to the sector ratio of 15.04x which shows that WLY is overvalued. Usually, companies that have great growth potential trade at a higher valuation, but if we look at the revenue guidance of WLY for FY24, it is around $1.75 billion, which is 12.8% lower than FY23 revenue. Hence it shows that the company is expecting a revenue decline, and I think they don’t deserve to trade at a higher valuation. Even I believe they might struggle financially in FY24 mainly due to the Hindawi publishing pause, which I mentioned earlier, and the other reason which I think will affect them is the continued softness in the corporate and consumer spending. In addition, if we compare WLY to some of its competitors like ( GCI ) & ( LEE ) we can see that they have better three and five revenue [CAGR] and better quant valuation rating than WLY. In addition, among the three, only WLY has a sell rating by the quant. So I think after comparing WLY with its peers and looking at the quant ratings, I think it is currently unattractive.
In addition, if we look at its balance sheet, by the end of Q4 FY23, it had Cash and cash equivalents of just $106.7 million with long-term debt of $743.2 million. So I believe the high debt will lead to high-interest payments in the coming quarters as the interest rates are at an all-time high. So this might affect their financials in the coming quarters, and the high debt also makes it difficult for the company to future fundraising. Hence looking at its growth rate, the high debt also becomes a matter of concern.
I believe due to their poor performance in FY23, weak guidance for FY24, and headwinds which are affecting them and might continue to do so, we have started to see its effects on the share price of WLY. The pattern change in the monthly time frame could be an indication that the share price of WLY might be under pressure, and we might see more downside in the share price in FY24. Hence considering all the factors, I think it is best to avoid it for now. Because I think the share might not be able to offer anything to its investors in the coming times. Hence I assign a hold rating on WLY.
Risk
There are numerous factors, such as changes to government and private student loan and grant programs, uncertainty about the present and future state of the economy, tuition increases, general declines in family income and net worth, and record-low unemployment as a result of a robust job market, can have a negative impact on enrollment in US colleges and universities. In addition, factors like regional politics, local economic situations, and other variables might affect enrollment levels at schools and universities abroad, making it challenging to estimate overseas enrollment levels. Reduced demand for their higher education programs could negatively affect their combined financial condition and operating results if predicted enrolment levels at colleges and universities both inside and outside the US decline.
Bottom Line
WLY posted poor quarterly and annual results, and I think WLY is overvalued. In addition, its revenue guidance for FY24 indicates weakness, and its technical chart also looks weak. Hence I think there are too many red flags currently in the stock, and I think WLY might be unable to provide returns to its investors in FY24. Hence I assign a hold rating on WLY.
For further details see:
John Wiley & Sons: No Buying Opportunity