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There’s Value Now- in Value Line Shares
Posted by: Dr. Paul Price (IP Logged)
Date: March 12, 2009 09:40PM

Value Line, Inc. [NDQ:VALU] March 12, 2009 close: $23.50
52-Week Range: $20.65 (March 12, 2009) - $47.20 (March 28, 2008)
Dividend: $0.40 quarterly = 6.81% current yield


Value Line provides investment advisory services to mutual funds, institutions and individual clients, and publishes investment-related periodicals. The company's Value Line Publishing subsidiary publishes investment-advisory publications that evaluate common stocks, options, mutual funds, and convertibles. In addition, Value Line produces investment-related software. The company also manages a family of mutual funds, as well pension funds and institutional and individual portfolios through Value Line Asset Management.

• company description from: Morningstar

This old-line company is a staple of investment information found in virtually every brokerage office, library, hedge fund company, and in the homes and workplaces of individual investors throughout America. Whether or not you agree with their ‘timeliness’ system for stock picking most serious equity researchers will at least consult the latest Value Line report on a stock before making their buy/sell decisions.

The company is completely debt free and has been such a great net cash generator that in 2004 they paid an $18.50/share special distribution. Since then the annual dividends have progressed from $1 in calendar 2005 to $1.05, $1.20, and $1.40 in calendar 2006-2007-2008. At the current quarterly rate of $0.40 the annualized rate is now $1.60/share for a very generous (and well covered) 6.8% current yield.

While many companies are struggling to maintain their earnings Value Line has shown steady, if unspectacular, EPS gains in each fiscal year since 2003.
Here are Value Line’s per share figures since FY 2003 [FYs end April 30]:

FY ........……. EPS …… Dividend ……Avg. P/E …..Year-End Yield
2003 ......…. 2.00 ……… 1.00 ……….. 21.7x ……….. 2.10%
2004 ......…. 2.04 ……. 18.50 ……….. 18.2x ……….. NMF
2005 …....... 2.14 ……... 1.00 ………. 17.1x ……….. 2.54%
2006 .....….. 2.35 ……... 1.05 ……….. 18.5x ……….. 2.83%
2007 …....... 2.47 ……... 1.20 ………. 16.5x ……….. 2.31%
2008 .....….. 2.56 ……... 1.40 ……….. 12.0x ……….. 2.95%

In the six months ended October 31, 2008 Value Line posted EPS of $1.56 versus $1.23 making trailing 12-month earnings $2.89/share. At today’s close of $23.50 the P/E is now just 8.13 and the current yield is an outstanding 6.8% while CDs and T-bonds are paying 2 - 3%.

Net profit margins have ranged from a low of 23.2% (FY 2002) to as high as 35% (FY 2000) over the past 10 years. ROE has been running between 29.1% and 48.3% since the special dividend payout in 2004. Return on Assets has ranged from 18.5% to 21.6% since then.

As of October 31, 2008 the company held over $39 million in cash against zero debt and with just 9.98 million shares outstanding.

At less than half price, and with more than twice its typical yield I see little remaining downside to these shares. Value Line has just one main competitor (Morningstar) and they have been peacefully coexisting for quite some time without either one threatening the other’s profitability.

A return to even the low end of Value Line’s previous stock price valuations would lead to a better than 50% total return from today’s quote. If the market mood picks up, a double within a year or two does not seem out of the question.


Disclosure: Author bought shares of VALU today (March 12, 2009).


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Re: There’s Value Now- in Value Line Shares
Posted by: batbeer2 (IP Logged)
Date: March 13, 2009 01:08AM

Interesting company, thank you for your analysis.

At first glance, it seems sales have been steadily declining for the last decade. They have done a good job of reducing COGS thereby maintaining gross profit. Seems to me that is the main driver for EPS growth.

Any ideas on why sales is going south and/or will start heading north again ?

Any ideas on where they may reduce costs even further thereby keeping healthy margins in the coming decade ?


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Rating: 2.4/5 (5 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: Dr. Paul Price (IP Logged)
Date: March 13, 2009 07:33AM

Sales are flattish due to the depressed market mood. When things are popping to the upside more individuals tend to subscribe. The institutional base is pretty stable.

The main way Value Line can improve margins is through price increases and/or cost cutting. Also, EPS can be boosted by buying back shares (which they have done in the past).

This is a "family controlled" company and a change in management, although not imminent, would probably give the shareholders a chance at big gains through better people in the top level jobs.

With an almost 7% yield and a decade low share price the risk/reward looks excellent even without any near term catalyst. These shares have ranged between $40 - $60 for most of the past 10 - 15 years.


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Rating: 4.0/5 (8 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: Weston (IP Logged)
Date: March 13, 2009 10:56AM

As mentioned Value Line is also a mutual fund manager. A portion of their revenue is from management fees which have and will be further impacted this quarter from the decline in asset values and redemptions in the last 2 quarters. This is not a growth business for small second tier players.


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Re: There’s Value Now- in Value Line Shares
Posted by: Dr. Paul Price (IP Logged)
Date: March 13, 2009 11:33AM

Weston,

A about 8 times trailing earnings you are not paying for growth. The mutual fund business is a very small part of the total picture.

Publishing is their main profit driver and that has been good even during these bad times as seen in their recent results.


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Rating: 3.4/5 (5 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: Weston (IP Logged)
Date: March 13, 2009 11:53AM

Mutual funds were 40% of revenue in 2008. Mutual fund management also tends to be a high margin business, but I don't know if thats true in a company with small operation like VALU. It's could be funds account for a higher percent of profits than revenue. It might be worth checking if details are provided if your investing.

Edit- Mutual fund assets have been pretty stable the last 3 years so it may or may not be relevant going forward. The main point is that if your investing you should be aware that it's possilble 50% of NI could be from asset management.


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Rating: 2.7/5 (6 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: DaveinHackensack (IP Logged)
Date: March 13, 2009 12:45PM

How has Value Line's track record been in recent years, in terms of stock picks? That might affect future subscriber levels, and hence, future revenues. I remember trying to sell a managed account product based on Value Line's Timeliness system to brokers several years ago and they all asked about the system's lagging performance over the previous few years. I have no idea how the system has performed since though.

Aside from this, a meta-question for you Paul: Have you ever considered buying a Dunkin' Donuts franchise? It seems to be a recession-proof business, and from what I've seen, owning one is like having a license to print money. You need seven figures liquid, if memory serves, to buy one, but you've mentioned in the past that you have (or had) a seven figure portfolio. There would also be tax advantages to owning a business like that -- you could put your grandchildren (if you have any) on the payroll part-time, and even open up 401(k)s for them; you could hire a nephew or another relative to supervise the grand kids, etc.

You could also keep pace with any future inflation by raising your prices, and you'd be unlikely to see the value of your franchise drop by half in any one year.

Just wondering if you've ever thought about this. I have it on good authority that the busiest D&D franchise in my town grosses about $50k per week (overhead can't be too high here either), and the guys who own it own another dozen. I bet they are happy with that 'portfolio'.

My signature: I blog at [steamcatapult.com]


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Rating: 2.6/5 (5 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: adamcz (IP Logged)
Date: March 13, 2009 01:32PM

50k a week???

If average purchase is $5 (and I actually think it may be less), that's 1.4k customers per day? Where is his franchise located, Times Square?


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Re: There’s Value Now- in Value Line Shares
Posted by: DaveinHackensack (IP Logged)
Date: March 13, 2009 04:26PM

The particular franchise for which I was given that gross revenue figure is located in Hackensack, and is open 24/7.

My signature: I blog at [steamcatapult.com]


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Rating: 2.0/5 (4 votes)



Re: There’s Value Now- in Value Line Shares
Posted by: Dr. Paul Price (IP Logged)
Date: April 2, 2009 09:46PM

Value Line stock gained $4.01 or + 15% today to finish at $30.61 /share.

I sold half my posiiton.


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