Near-Term Woes Hammered Wiley’s Third-Quarter Results, but Brand Cachet Intact; Shares Are a Bargain

We think wide-moat Wiley’s WLY disappointing third-quarter marks and the unrelenting impact of transitory challenges prompted the 17% rout in shares down. Wiley reported $491 million in constant-currency organic revenue and $0.85 in adjusted diluted EPS, short of consensus’ $494 million and $0.91, respectively. Further unpacking the quarter, a lower enrollment rate (down 6%) resulted in an 11% drop in Wiley’s university services revenue (10% of sales), but a resilient job market supported its talent segment (12% of sales), which posted double-digit growth in placements and corporate training. We’re particularly encouraged by efforts to extract inefficiencies through rightsizing its portfolio and streamlining workflows, which should yield savings of up to $60 million (half to be realized in fiscal 2023).

We surmise student enrollments should rebound as the labor market cools, with more people pursuing further education (in line with historical trends), albeit with a 12-to-18-month lag. Additionally, a temporary pause of the Hindawi special issues program (due to compromised articles submitted with the help of third-party editors) should only drag near-term results (up to $50 million in revenue and $25 million in adjusted EBITDA in fiscal 2023 and lower impact in fiscal 2024) as Wiley strives to reopen the program with AI-based screening tools, which we deem as prudent.

Wiley’s full-year outlook now reflects $2.07 billion-$2.09 billion in revenue and $3.30-$3.55 in adjusted EPS (from $2.11-$2.15 billion and $3.70-$4.05, respectively); we plan to edge down our near-term forecast to the guided range. However, Wiley’s stout competitive standing remains, and our long-term prospects for the business are unchanged. This should lead to low-single-digit average annual top-line growth and nearly 20% adjusted EBITDA margin by fiscal 2032. There is little to warrant a material change to our $53 fair value estimate and we view shares as attractive.