Niche Markets to Boost Reed Elsevier Sales

Reed Elsevier's publishing unit and LexisNexis are valuable enterprises that should drive sales over the next five years

Michael Corty, CFA 23 September, 2010 | 3:58PM
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Reed Elsevier is a diversified publisher and information services company. Elsevier and LexisNexis possess competitive advantages that give the firm a narrow economic moat; however, its other businesses face challenges.

Fair Value Estimate: 525p ¦ Uncertainty Rating: Medium ¦ Economic Moat: Narrow

Thesis (Last updated 17/09/10)
Elsevier's publishing unit has the strongest competitive advantage among the firm's four segments. Elsevier has a market share of around 25% in the niche science, technology, and medical publishing industry, and is about three times larger than its closest competitor. Health Sciences is the largest medical publisher in the world, with doctors, nurses, and medical researchers using its content to make decisions and improve medical outcomes. For example, Gray's Anatomy, the number-one selling medical reference in history with 40 editions over 152 years, is essential content for medical professionals and there is no viable substitute product. The science and technology portion of the business publishes more than 200,000 new research articles in more than 1,100 journals on an annual basis. Access to this research is crucial for customers, including academic and professional libraries, which sign multiyear contracts for the rights to the valuable content. The subscriber base for many of the journals is relatively small, so there is minimal appeal for creating a substitute product which makes the popular journals mini-monopolies.

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Michael Corty, CFA  Michael Corty, CFA, is an equity analyst with Morningstar.