Intrinsic value of Scholastic - SCHL

Previous Close

$43.19

  Intrinsic Value

$15.80

stock screener

  Rating & Target

str. sell

-63%

Previous close

$43.19

 
Intrinsic value

$15.80

 
Up/down potential

-63%

 
Rating

str. sell

We calculate the intrinsic value of SCHL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  1,813
  1,889
  1,970
  2,056
  2,146
  2,242
  2,344
  2,451
  2,564
  2,683
  2,809
  2,941
  3,081
  3,228
  3,383
  3,545
  3,717
  3,897
  4,087
  4,286
  4,496
  4,716
  4,948
  5,191
  5,447
  5,716
  5,998
  6,295
  6,607
  6,934
Variable operating expenses, $m
  1,253
  1,305
  1,360
  1,418
  1,480
  1,546
  1,615
  1,689
  1,766
  1,848
  1,922
  2,012
  2,108
  2,208
  2,314
  2,426
  2,543
  2,666
  2,796
  2,932
  3,076
  3,227
  3,385
  3,552
  3,727
  3,910
  4,104
  4,307
  4,520
  4,744
Fixed operating expenses, $m
  469
  479
  490
  501
  512
  523
  535
  546
  558
  571
  583
  596
  609
  622
  636
  650
  664
  679
  694
  709
  725
  741
  757
  774
  791
  808
  826
  844
  863
  882
Total operating expenses, $m
  1,722
  1,784
  1,850
  1,919
  1,992
  2,069
  2,150
  2,235
  2,324
  2,419
  2,505
  2,608
  2,717
  2,830
  2,950
  3,076
  3,207
  3,345
  3,490
  3,641
  3,801
  3,968
  4,142
  4,326
  4,518
  4,718
  4,930
  5,151
  5,383
  5,626
Operating income, $m
  92
  105
  120
  137
  154
  173
  194
  216
  240
  265
  304
  333
  364
  397
  432
  470
  509
  552
  597
  644
  695
  749
  805
  866
  929
  997
  1,068
  1,144
  1,224
  1,308
EBITDA, $m
  163
  180
  197
  216
  237
  259
  283
  309
  336
  365
  397
  430
  466
  503
  544
  587
  632
  680
  732
  786
  843
  904
  969
  1,037
  1,109
  1,186
  1,266
  1,352
  1,442
  1,537
Interest expense (income), $m
  1
  0
  7
  15
  23
  31
  40
  49
  59
  70
  81
  93
  105
  118
  132
  146
  162
  178
  195
  212
  231
  251
  271
  293
  316
  340
  365
  391
  419
  448
  479
Earnings before tax, $m
  92
  98
  106
  114
  123
  133
  144
  156
  170
  184
  211
  228
  246
  265
  286
  308
  332
  357
  384
  413
  444
  477
  513
  550
  590
  632
  677
  725
  775
  829
Tax expense, $m
  25
  27
  29
  31
  33
  36
  39
  42
  46
  50
  57
  62
  66
  72
  77
  83
  90
  96
  104
  112
  120
  129
  138
  148
  159
  171
  183
  196
  209
  224
Net income, $m
  67
  72
  77
  83
  90
  97
  105
  114
  124
  134
  154
  166
  179
  193
  209
  225
  242
  261
  281
  302
  324
  348
  374
  401
  431
  461
  494
  529
  566
  605

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,774
  1,849
  1,928
  2,011
  2,100
  2,194
  2,293
  2,398
  2,509
  2,625
  2,748
  2,878
  3,015
  3,158
  3,310
  3,469
  3,637
  3,813
  3,999
  4,194
  4,399
  4,614
  4,841
  5,079
  5,330
  5,593
  5,869
  6,159
  6,464
  6,785
Adjusted assets (=assets-cash), $m
  1,774
  1,849
  1,928
  2,011
  2,100
  2,194
  2,293
  2,398
  2,509
  2,625
  2,748
  2,878
  3,015
  3,158
  3,310
  3,469
  3,637
  3,813
  3,999
  4,194
  4,399
  4,614
  4,841
  5,079
  5,330
  5,593
  5,869
  6,159
  6,464
  6,785
Revenue / Adjusted assets
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
  1.022
Average production assets, $m
  598
  624
  650
  678
  708
  740
  773
  809
  846
  885
  927
  971
  1,017
  1,065
  1,116
  1,170
  1,227
  1,286
  1,349
  1,414
  1,484
  1,556
  1,633
  1,713
  1,797
  1,886
  1,979
  2,077
  2,180
  2,288
Working capital, $m
  147
  153
  160
  167
  174
  182
  190
  199
  208
  217
  228
  238
  250
  261
  274
  287
  301
  316
  331
  347
  364
  382
  401
  420
  441
  463
  486
  510
  535
  562
Total debt, $m
  19
  38
  59
  81
  104
  129
  155
  182
  211
  242
  274
  308
  344
  381
  421
  463
  507
  553
  601
  653
  706
  763
  822
  885
  950
  1,019
  1,091
  1,168
  1,247
  1,331
Total liabilities, $m
  465
  484
  505
  527
  550
  575
  601
  628
  657
  688
  720
  754
  790
  827
  867
  909
  953
  999
  1,048
  1,099
  1,152
  1,209
  1,268
  1,331
  1,396
  1,465
  1,538
  1,614
  1,694
  1,778
Total equity, $m
  1,309
  1,364
  1,423
  1,484
  1,550
  1,619
  1,692
  1,770
  1,851
  1,937
  2,028
  2,124
  2,225
  2,331
  2,443
  2,560
  2,684
  2,814
  2,951
  3,095
  3,246
  3,405
  3,573
  3,748
  3,933
  4,127
  4,331
  4,546
  4,771
  5,007
Total liabilities and equity, $m
  1,774
  1,848
  1,928
  2,011
  2,100
  2,194
  2,293
  2,398
  2,508
  2,625
  2,748
  2,878
  3,015
  3,158
  3,310
  3,469
  3,637
  3,813
  3,999
  4,194
  4,398
  4,614
  4,841
  5,079
  5,329
  5,592
  5,869
  6,160
  6,465
  6,785
Debt-to-equity ratio
  0.010
  0.030
  0.040
  0.050
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.140
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
Adjusted equity ratio
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738
  0.738

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  67
  72
  77
  83
  90
  97
  105
  114
  124
  134
  154
  166
  179
  193
  209
  225
  242
  261
  281
  302
  324
  348
  374
  401
  431
  461
  494
  529
  566
  605
Depreciation, amort., depletion, $m
  72
  74
  77
  80
  83
  86
  89
  93
  97
  100
  93
  97
  102
  107
  112
  117
  123
  129
  135
  141
  148
  156
  163
  171
  180
  189
  198
  208
  218
  229
Funds from operations, $m
  139
  146
  154
  163
  173
  183
  195
  207
  220
  235
  247
  263
  281
  300
  320
  342
  365
  389
  415
  443
  473
  504
  537
  573
  610
  650
  692
  737
  784
  834
Change in working capital, $m
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
Cash from operations, $m
  133
  140
  148
  156
  165
  175
  186
  198
  211
  225
  237
  253
  270
  288
  308
  329
  351
  375
  400
  427
  456
  486
  519
  553
  590
  628
  669
  713
  759
  808
Maintenance CAPEX, $m
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -97
  -102
  -107
  -112
  -117
  -123
  -129
  -135
  -141
  -148
  -156
  -163
  -171
  -180
  -189
  -198
  -208
  -218
New CAPEX, $m
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -59
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -108
Cash from investing activities, $m
  -81
  -85
  -89
  -93
  -98
  -103
  -107
  -112
  -118
  -124
  -130
  -137
  -143
  -151
  -158
  -166
  -174
  -182
  -192
  -201
  -210
  -221
  -232
  -243
  -255
  -269
  -282
  -296
  -311
  -326
Free cash flow, $m
  51
  55
  59
  63
  68
  73
  79
  86
  93
  101
  107
  116
  127
  138
  150
  163
  177
  193
  209
  226
  245
  265
  287
  309
  334
  360
  387
  417
  448
  482
Issuance/(repayment) of debt, $m
  19
  19
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  66
  69
  72
  76
  80
  84
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  19
  19
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  66
  69
  72
  76
  80
  84
Total cash flow (excl. dividends), $m
  70
  74
  79
  85
  91
  98
  105
  113
  122
  132
  139
  150
  162
  176
  190
  205
  221
  239
  258
  278
  299
  322
  346
  372
  399
  429
  460
  493
  528
  566
Retained Cash Flow (-), $m
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -101
  -106
  -112
  -118
  -124
  -130
  -137
  -144
  -151
  -159
  -167
  -176
  -185
  -194
  -204
  -214
  -225
  -237
Prev. year cash balance distribution, $m
  51
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
Cash available for distribution, $m
  68
  20
  21
  23
  25
  28
  32
  36
  40
  45
  48
  54
  62
  69
  78
  87
  98
  109
  121
  134
  148
  163
  179
  196
  215
  235
  256
  279
  303
  329
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  65
  18
  18
  19
  20
  21
  21
  22
  23
  24
  23
  23
  23
  23
  23
  22
  21
  20
  19
  17
  15
  13
  12
  10
  8
  7
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Scholastic Corporation is a publisher and distributor of children's books, a provider of print and digital instructional materials for pre-kindergarten (pre-K) to grade 12, and a producer of educational and entertaining children's media. The Company operates through three segments: Children's Book Publishing and Distribution, Education and International. The Children's Book Publishing and Distribution segment includes the publication and distribution of children's books, e-books, media and interactive products in the United States through its book clubs and book fairs in its school channels and through the trade channel. The Education segment includes publication and distribution to schools and libraries of children's books, classroom magazines, supplemental classroom materials, and print and online reference and non-fiction products for grades pre-K to 12 in the United States. The International segment includes its international operations, and export and foreign rights businesses.

FINANCIAL RATIOS  of  Scholastic (SCHL)

Valuation Ratios
P/E Ratio 29.2
Price to Sales 0.9
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 31.6
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 52.5%
Cap. Spend. - 3 Yr. Gr. Rate -21.7%
Financial Strength
Quick Ratio 74
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0.5%
Interest Coverage 89
Management Effectiveness
Return On Assets 3%
Ret/ On Assets - 3 Yr. Avg. 7.7%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 11.1%
Return On Equity 4.1%
Return On Equity - 3 Yr. Avg. 11.7%
Asset Turnover 1
Profitability Ratios
Gross Margin 53.2%
Gross Margin - 3 Yr. Avg. 53.8%
EBITDA Margin 8.7%
EBITDA Margin - 3 Yr. Avg. 7.9%
Operating Margin 5.1%
Oper. Margin - 3 Yr. Avg. 3.7%
Pre-Tax Margin 5.1%
Pre-Tax Margin - 3 Yr. Avg. 3.7%
Net Profit Margin 3%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 39.8%
Eff/ Tax Rate - 3 Yr. Avg. 40.9%
Payout Ratio 40.4%

SCHL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SCHL stock intrinsic value calculation we used $1742 million for the last fiscal year's total revenue generated by Scholastic. The default revenue input number comes from 2017 income statement of Scholastic. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SCHL stock valuation model: a) initial revenue growth rate of 4.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for SCHL is calculated based on our internal credit rating of Scholastic, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Scholastic.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SCHL stock the variable cost ratio is equal to 69.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $459 million in the base year in the intrinsic value calculation for SCHL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 38.4% for Scholastic.

Corporate tax rate of 27% is the nominal tax rate for Scholastic. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SCHL stock is equal to 0.6%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SCHL are equal to 33%.

Life of production assets of 10 years is the average useful life of capital assets used in Scholastic operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SCHL is equal to 8.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1308 million for Scholastic - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 35 million for Scholastic is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Scholastic at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Scholastic Corporation Announces First Quarter Dividend   [Jul-18-18 01:30PM  PR Newswire]
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▶ [$$] Summer books of 2018: Childrens and Picture books   [Jun-29-18 07:14AM  Financial Times]
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▶ Scholastic reports 3Q loss   [Mar-21-18 04:20PM  Associated Press]
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▶ 5 Stocks That Look Good Short   [Jan-28-18 02:00PM  TheStreet.com]
▶ Scholastic posts 2Q profit   [07:16AM  Associated Press]
▶ ETFs with exposure to Scholastic Corp. : October 17, 2017   [Oct-17-17 09:59AM  Capital Cube]
▶ Some Companies Have Growth Stories -- and Some Don't   [Sep-22-17 10:57PM  Motley Fool]
▶ Company News For Sep 22, 2017   [10:18AM  Zacks]
▶ Scholastic reports 1Q loss   [Sep-21-17 10:03PM  Associated Press]
▶ What Happened in the Stock Market Today   [05:03PM  Motley Fool]
▶ How Harry Potter Killed Scholastic Shares   [10:30AM  24/7 Wall St.]
▶ Scholastic Corporation Announces Second Quarter Dividend   [Sep-20-17 12:00PM  PR Newswire]
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