Barnes & Noble Q4 Results In Line, Valuation Compelling

3/20 - "Barnes & Noble reported Q4 EPS of $1.79, in line with preannounced guidance of $1.76-$1.82 and our estimate of $1.80. Excluding previously disclosed nonrecurring favorable items of $0.10, EPS were $1.69. The company earned $1.84 in 4Q06...Management reaffirmed 2008 EPS guidance of $1.70-$1.90. Excluding $0.21 of favorable items, BKS earned $1.81 in 2007...Barnes & Noble also increased its quarterly dividend to $0.25 from $0.15, creating an attractive dividend yield of 3.4%."

"We believe an acquisition of Borders by Barnes & Noble, if it were to occur, could create synergies that could potentially be highly accretive to BKS’ earnings power. Thus far, BKS has not been contacted by Borders’ investment bankers."

"At current levels, BKS now sports a low forward EV/EBITDA multiple of 3.9x, based on trough 2008 EBITDA of $364MM. We view this as an excessively low valuation and believe downside risk at these levels is very limited. We therefore maintain our Strong Buy rating...We are raising with our FY08 EPS estimate by $0.01 to $1.80. Barnes & Noble earned $1.81 (excluding items) for FY07. We are also introducing a preliminary 2009 EPS estimate of $1.99."