Courier: Book Manufacturer Selling Below Book With A 7% Dividend Yield

| About: Courier Corporation (CRRC)

Founded in 1824 and headquartered in North Chelmsford, Massachusetts, Courier Corporation (NASDAQ:CRRC) is America's third largest book manufacturer and a leader in content management and customization in new and traditional media. It also publishes books under three brands offering award-winning content and more than 10,000 titles. CRRC has two operating segments: book manufacturing and specialty publishing. The book manufacturing segment accounted for 89% of fiscal year 2011 sales and offers services from prepress and production through storage and distribution, as well as innovative content management, customization, and state-of-the-art digital print capabilities.

Executive Summary

CRRC's current P/B valuations at 0.88x represent a 15% discount to its five year average P/B of 1.03. CRRC is free cash flow positive in every single year for the past decade and has a strong balance sheet with low debt. CRRC sports a dividend yield of 7.4% and has paid dividends for 19 consecutive years. It is also currently authorized to repurchase up to $10 million of its common stock, equivalent to 7% of its market capitalization of $128.4 million. CRRC is America's third largest book manufacturer with a blue chip customer base and outstanding growth in four-color books.

Business Quality

CRRC is the third largest book manufacturer in America, after RR Donnelley and Quad Graphics. It boosts of a blue chip customer base in its market segments: educational (Pearson, Mcgraw-Hill), religious (The Gideons International, Zondervan) and specialty trade (Wiley, RandomHouse). In January 2011, CRRC signed a multi-year book manufacturing arrangement with Pearson Education, this bodes well for continued sales growth with this customer.

CRRC is benefiting from its leadership and recent investments in four-color manufacturing technology, with an increase in four-color offset sales from both new and existing trade customers. In fiscal year 2012, its revenues from the digital operations increased 48% year-on-year, reflecting growth in demand for customized versions of college textbooks as well as shorter runs of trade books. This is a result of publishers increasingly utilizing digital printing in combination with offset to capture the full life-cycle potential of every title.

CRRC is not seriously impacted by fluctuations in the cost and availability of paper, as paper is normally supplied by customers at their expense or price increases are passed through to customers in its book manufacturing segment.

Valuation and Financial Analysis

CRRC is currently trading at a trailing twelve months P/E of 14.19 and a trailing twelve months EV/EBITDA of 3.56. In terms of asset-based valuations, CRRC's current P/B valuations at 0.88x represent a 15% discount to its five year average P/B of 1.03. CRRC achieved a ROE of 6.1% for the past twelve months and grew its book value per share by a ten year CAGR of 4.4%. CRRC has generated positive free cash flow in every single year for the past decade. CRRC has a strong balance sheet with a low gross debt-to-equity ratio of 10%.

Capital Allocation

CRRC has paid dividends in every single year since 1995, and currently sports a dividend yield of 7.4%. Dividends are paid quarterly.

On Nov. 20, 2012, CRRC's Board of Directors also authorized the repurchase of up to $10 million of its outstanding common stock to be carried out over the next twelve months. Previously, CRRC's Board of Directors approved the repurchase of up to $10 million of its outstanding common stock on Apr. 19, 2012. From April through September, CRRC repurchased 823,970 shares of common stock for approximately $10.0 million. CRRC also spent $19.6 million on share repurchases in 2008.

Investment Risks

Car's two largest customers, Pearson Education, Inc.and The Gideons International, accounted for 55% and 53% of its fiscal 2012 and 2011 revenues respectively.

The book distribution landscape is undergoing rapid change, with the closure or bankruptcy of major bookstores such as Borders and independent bookstores, the increasing popularity of e-books, and the reduction in inventory and shelf space for books in other national chains. CRRC has responded by expanding its online and direct consumer sales and seeking alternative channels for its products, such as mass merchandising chains.

CRRC participates in two multi-employer defined benefit pension plans for certain union employees, and currently expects to contribute approximately $418,000 to these two plans in fiscal year 2013. As of Sep. 29, 2012, both plans are estimated to be underfunded and have a Pension Protection Act zone status of critical, which identifies plans that are less than 65% funded.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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