Scholastic: More than Harry Potter

11/29/2002 12:00 am EST

Focus:

Sam Stovall

Chief Investment Strategist, CFRA Research

"Seasonal influences on the stock market are favorable," notes S&P chief investment strategist Sam Stovall. "November through April has been the strongest of any six-month period for the S&P 500 since 1972, with a gain averaging 7% before dividends. Particularly notable has been the performance in the month of December over the past 15 years. During this stretch, the S&P 500 has risen 14 times and slipped just once (1996)." Here’s a recent recommendation from S&P’s The Outlook.

"We believe the shares of Scholastic Corp. (SCHL OTC), a major children's book publisher, which are off about 11% year to date, are attractively priced for long-term capital gains. Trading at 16 times our per-share earnings estimate for fiscal 2003 (ending May), the stock is valued toward the low end of its historical p/e range and below the 21 average multiple accorded stocks of the company ’s peers.

"The release of the next Harry Potter title in the early spring may be too late to provide a meaningful boost to fiscal 2003 revenues and earnings. Even so, we project nearly a 10% rise in total revenues for the year. Revenues are benefiting from popular supplemental reading programs, new products and services, and strength in Scholastic’s trade book series. In addition, management has successfully refocused the company to emphasize sustainable revenue and margin growth in its four core businesses.

"Beginning late in fiscal 2003,and continuing for a decade, Scholastic should begin to benefit from additional literacy spending related to the recently passed 'No Child Left Behind' educational reform law. We estimate fiscal 2003 earnings of $2.92 a share, up 16% from last year’s $2.51. We advise accumulation for long-term capital appreciation."

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