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Value Line - An Iconic, Debt-Free Name Near a Decade Low

March 23, 2010 | About:
provides investment advisory services to mutual funds, institutions and individual clients, and publishes investment-related periodicals. The Value Line Publishing subsidiary publishes investment advisories that rate and evaluate common stocks, options, mutual funds, and convertibles. Value Line also produces investment-related software and manages a family of mutual funds, pension funds, institutional and individual portfolios through Value Line Asset Management.





The company’s investment advice can be found in almost any good-sized library in America as well as on the shelves of virtually every American brokerage firm. The company recently paid a $47,706,000 fine to settle with the SEC regarding a variety of mutual fund practices that were not related to their core business of providing investment related information. Jean Bernhard Buttner resigned as CEO and Chairman over this issue last November and was replaced by Howard Brecher, Value Line’s Chief Legal Officer, who became the Acting Chairman.


The fiscal third quarter showed decent results with earnings (excluding the SEC settlement) of $0.36 per share versus a $0.27 estimate and year earlier EPS of $0.38. The lone analyst covering Value Line stock now carries FY 2010 (ends April 30, 2010) and FY 2011 estimates of $1.45 and $1.52 excluding the one-time charge.


Even after paying the large SEC fine Value Line remains debt-free and holds about $14 million in treasury cash. The dividend had been $0.40 quarterly through January 2009 but was cut to $0.30 in April last year and to $0.20 quarterly last July when the need to conserve cash for the settlement became defined. I think the attractive current yield of 3.5% is now sustainable.


Here are the per share, fully diluted, numbers from continuing operations for the FYs 2005 – 2009 as reported by Morningstar:




FY*


Sales


EPS


Dividends


52- Week Range**


P/E Range


2005


84.50


2.10


1.00


$33.36 - $43.37


15.9x – 20.7x


2006


85.20


2.40


1.00


$33.11 - $57.70


13.8x – 24.0x


2007


83.60


2.50


1.15


$39.14 - $56.00


15.7x – 22.4x


2008


82.70


2.60


1.20


$24.51 - $47.20


9.4x – 18.2x


2009


69.20


2.30


1.50


$20.65 - $39.98


9.0x – 17.4x


* FYs end April 30 of the same year **Calendar year High/Lows





Clearly, Value Line has ‘earnings power’ of at least $2 per share in normal times. Excepting the November 2008 – March 9, 2009 meltdown period Value Line has almost never traded below about 15x earnings. Now that the SEC matter is behind the company and with new upper management in place I think Value Line can get back to much better earnings and a $30 - $40 share price again. Is that a reasonable target? Value Line shares hit peak prices of between $39.98 and $57.70 during each of the past five years. They touched $36.52 as recently as last summer.


With a clean balance sheet, a higher-than-CD-rate yield and a well entrenched market position, there appears to be little risk of a serious decline from today’s closing price of $22.89. VALU touched a new 52-week low during today’s trading, getting me interested in taking a position.


Of the 10 million outstanding shares about 87% are held by insiders with 9% of the rest held by mutual funds.


Some well-regarded holders (as of Dec. 31, 2009) included:


…………………………….......…………… # shares ………… % Out.


Dimensional Fund Advisors …………... 201,841 …………. 2.02%


Wellington Management ………..……. 184,884 …….…… 1.85%


American Century Companies ………. 125,700 …………. 1.26%


Northern Trust Corp. ……………….... 50,558 …………… 0.51%


Oppenheimer Funds ……………….… 47,279 …………… 0.47%


Royce and Associates …………….…. 35,487 …………… 0.36%


BlackRock Institutional Trust Co .....… 33,001 …………… 0.33%


BlackRock Fund Advisors ………..….. 28,824 ………….. 0.29%


State Street Corp. ………………..….. 23,787 ………….. 0.24%





These shares are very thinly traded. If you plan to buy, use limit orders and be patient. Average trading volume is low and the bid/ask spreads vary from not too large to fairly wide depending on the market mood.


While nobody can predict a sale of the whole company the heavy and highly concentrated insider holdings could facilitate a deal if the founding family ever decides to unload the business. There are a few well-matched potential acquirers if the Bernhard family wants to exit the business.


Dr. Paul Price


www.BeatingBuffett.com





Disclosure: Author bought shares of Value Line in today’s trading session.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 4.4/5 (7 votes)

Comments

tighanx
Tighanx - 4 years ago
Thank you for sharing this idea.

You mentioned "Excepting the November 2008 – March 9, 2009 meltdown period Value Line has almost never traded below about 15x earnings". Could it be that VALU was just overvalued in past years? A 15 P/E doesn't look cheap for a company with no growth, though stable.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


VALU is trading for less than 12.5x their previous low-end earnings and I expect to see both higher earnings and a share price of $30 - $40 within 2 years.

The 3.5% yield makes it easy to wait for the rebound.
superguru
Superguru - 4 years ago
tighanx has a good point. How do you justify 12.5 or 15 pe? just because it traded at in past!!!

It sounds like Nygren's wamu logic.

batbeer2
Batbeer2 premium member - 4 years ago
At p/e of 15 the company yields less than 7% on earnings. To make a return in excess of 7% compounded, IMO you either need to see likely growth or you need to see why GAAP earnings understate true earnings.

Anything else is speculating on price fluctuations.

Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


Batbeer,

What's the P/E on USG's huge losses?

Why do you love a company with a negative earnings yield?
sims73
Sims73 - 4 years ago
apparently mgmt change was part of the settlement.

but guess what that same management continues to hold 90% of stock - so will there be real change going forward?

the "have seen 15 p/e in the past is a weak argument too."
expectingrain
Expectingrain - 4 years ago
Doc- USG is a deep cyclical. You need to use normalized earnings over the entire cycle. Not one year's earnings. As a rule of thumb- deep cyclicals are usually a better value when they have a HIGH P/E. A deep cyclical stock trading at a very low P/E is a classic value trap.



Batbeer,

What's the P/E on USG's huge losses?

Why do you love a company with a negative earnings yield?
the Spark
The Spark - 4 years ago


This company was around long before Morningstar and had far greater resources than Morningstar when that company was founded, yet Morningstar has prospered in a business that Value Line should have been in and dominated. The lack of foresight makes one question management. Couple that with the litigation settlement and you have to wonder who you are partnering up with. Even with management change, it will be very difficult to change the culture.
augustabound
Augustabound - 4 years ago




Batbeer,

What's the P/E on USG's huge losses?

Why do you love a company with a negative earnings yield?


Why do you continue on about USG like this? Let it go.

Do we have to bring up your love affair with Sally Mae?
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


I mention USG because you imply that owning a company with too low an earnings yield is not good yet you feel that holding a large position in a company that has shown multi-year huge losses (and a negative earnings yield) is just fine.

I sold SLM long ago. You continue to champion USG shares.
augustabound
Augustabound - 4 years ago
Apparently you have batbeer and I mixed up.

You put as much thought in to your rebuttals as you do your other posts I see.

Where did batbeer bring up USG in this thread? His comment was on P/E and earnings yield.
batbeer2
Batbeer2 premium member - 4 years ago
@ The Spark

Good point !

@ Augustabound

I consider that a compliment.

@ Stockdocx99

1) I did not state or imply that investing in VALU was good or bad.

2) Fair point on USG; current earnings yield is not high. I expect that to change and I have shared the reasons why on other threads. Do you expect earnings growth for value line and if so why ?
the Spark
The Spark - 4 years ago


If anyone thinks there is a catalyst at Value Line, I would like to hear it. I have 29 years worth of Value Line's in my office and the ones from 1981 look exactly like the ones today and I would bet the number of subscribers is far lower. Can you name a single pro-shareholder activity by management in the past 20 or 30 years? The fiasco with the mutual funds (which have never been star performers) means those funds are damaged goods in the public eye. How do you ever recover from that? I just don't see anything changing. As Charlie Munger once said when you mix raisins with turds, you still have turds.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago


DJIA down 52 points today.

VALU up 4.2% today.

Someone must have thought VALU was too cheap at yesterday's close.
augustabound
Augustabound - 4 years ago


@ Augustabound

I consider that a compliment.
As do I of course. :)

Doc, you must be kidding. I can't believe you're quoting one day in the market. All that is Mr. Market noise and you seem to have fallen for it. Wow, you must be a genius if you saw a 4% gain coming today.

Second, what does the Dow have to do with Value Line? It's not a Dow component so why quote it against the Dow?
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago




Value Line, Inc. Announces Special Dividend of $3.00 Per Share in Lieu of Regular Quarterly Dividend of $0.20 Per Share

Symbol Price Change

VALU 27.04 0.00

NEW YORK, April 16

Value Line, Inc. (Nasdaq:VALU - News), a leading New York based publishing and investment management company, announced today that its Board of Directors approved a special dividend of $3.00 per common share of Value Line, payable on April 29, 2010 to shareholders of record on April 26, 2010. The special dividend is being paid in lieu of Value Line’s regular quarterly dividend of $0.20 per common share of Value Line.

Shares of VALU are ex-dividend today, April 22nd for the $3 special payout after closing above $27 prior to the ex-.

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