Citigroup Lowers Scholastic to 'Hold'

Analyst William Bird cites concerns related to the publishing company's continuities business

Citigroup downgraded Scholastic (SCHL ) to hold from buy.

Analyst William Bird says he downgraded on concerns related to the company's continuities business, which are programs that let customers place a single order and receive multiple shipments of books over a period of time.

Bird thinks the flat growth estimate for continuities for the second half of fiscal 2004 (May) might be aggressive, given lingering customer acquisition challenges from the do-not-call list. He's concerned about lower-than-expected response rates from people not on the do-not-call registry.

Bird believes Scholastic could have meaningful upside 18 months out if the market discounts the potential launch of the next Harry Potter book, but he would sit on the sidelines until continuities stabilize. He cut the $2.23 fiscal 2004 earnings per share estimate to $2.16, and cut the $2.00 fiscal 2005 estimate to $1.91.

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