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Nate Sterling
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I have been a successful investor for 15 years now. I have a baccalaureate degree in psychology focusing on behavioral finance issues, and a doctorate degree in law. I believe in a long-term investing perspective. I believe that to be successful in investing requires both solid fundamental... More
  • 10 Good Reasons Why RUK Is A Good Long Term Buy At $33 0 comments
    Apr 25, 2012 1:49 PM | about stocks: RUK

    10 good reasons why RUK is a good long term buy at $33:

    1) High dividend yield of 6.1% per annum.

    Reed Elsevier plc (NYSE:RUK)

    -NYSE

    33.08 Up 0.13(0.38%) 1:29PM EDT - Nasdaq Real Time Price

    Add to Portfolio

    Prev Close:32.95
    Open:32.72
    Bid:33.04 x 200
    Ask:33.08 x 300
    1y Target Est:35.47
    Beta:0.9
    Next Earnings Date:N/A
    Day's Range:32.79 - 33.12
    52wk Range:29.32 - 37.28
    Volume:54,924
    Avg Vol (3m):57,967
    Market Cap:9.94B
    P/E (ttm):15.95
    EPS (ttm):2.07
    Div & Yield:2.03 (6.10%)

    Compare Brokers

    2) Good management under CEO Eric Engstrom; the company has increased revenues and decreased expenses and is divesting non-core assets, has been growing earnings.

    3) MACD and RSI show RUK to be in somewhat oversold territory.

    4) Forward price to earnings ratio for 2012 is estimated at a reasonable 11 based on projected earnings of $3/share for 2012.

    Fiscal Years Avg Est. High Est. Low Est. # of Est. Est. P/E
    2012 3.05 3.11 2.99 2 11.1
    2011 2.90 2.93 2.88 2 11.7

    5) General trend in global economies from industrial-based to information-based and RUK is well-positioned to capitalize on this trend as they are in the information analytics business.

    6) RUK sometimes has a virtual monopoly on the information that is needed in the medical, legal, business and sciences fields. Businesses will pay for necessary information that they cannot get anywhere else.

    7) Solid and steady monthly and yearly subscription based revenues streams are their core earnings.

    8) Return on equity is a solid 32.7%.

    9) Zero long term debt is always a big plus.

    10) Discounted cash flow model fair value calculation of $44.25 given $3/per share earnings which translates into RUK selling at a 25% discount.

    Enter Symbol:(Price: $33.06)
    Earnings Per Share:$ 3

    Growth Rate
    In the Next

    Years: %
    Business Predictability
    • Currently 1/5
    Terminal Growth Rate:%
    Years of Terminal Growth:
    Discount Rate:%
     
    Tangible Book Value:$
    Growth Value:$ 27.21
    + Terminal Value:$ 17.05
    = Fair Value:$ 44.25
    Result may not be accurate due to the low predictability of business
    Margin Of Safety:25%

    So from a bottom-up analysis of the technicals and fundamentals it would appear that RUK is a good buy for a long term investor at $33 per share. However, recently there have been unusually high market correlations so a top-down (macroeconomic) analytical paradigm is probably more important to how equities are moving given the headline making European sovereign debt problems, FED policymaking decisions, unemployment numbers, etc.

    Disclosure: I am long RUK.

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