Expanding Literacy Programs And Multicultural Content Will Fuel Future Success

Key Takeaways

• Expansion of literacy programs, diverse content offerings, and digital integration are set to boost recurring revenues, audience reach, and margin growth across segments.
  
• Operational restructuring, asset monetization, and shareholder-focused actions will enhance efficiency, financial flexibility, and long-term value creation.
  
• Continued pressure on core education and international segments, reliance on key bestsellers, and rising costs threaten revenue growth, margins, and long-term earnings stability.

Catalysts

Scholastic Corporation, together with its subsidiaries, publishes and distributes children’s books in the United States and internationally.

• The rising global focus on childhood literacy and state/community-sponsored reading programs is creating new funding pipelines less dependent on constrained school budgets. Scholastic's expanding partnerships with state governments and literacy organizations are expected to drive incremental, recurring revenue streams, supporting long-term revenue growth and stabilizing the Education segment.
  
• With increasing societal emphasis on diversity and inclusion, Scholastic's ability to deliver multicultural content across its vast IP catalog and new releases (including prominent and diverse authors) positions the company to deepen school and library relationships, broaden its audience, and drive consistent sales growth-positively impacting both revenue and margin profile.
  
• The ongoing integration of digital and print channels-reflected in higher digital engagement (e.g., YouTube, AVOD platforms), global best-seller launches across multiple formats, and growing high-margin digital content licensing-addresses evolving consumption patterns, expanding recurring digital revenues and supporting gradual net margin expansion.
  
• Strategic cost reductions, organizational restructuring, and enhanced cross-channel coordination (notably the merging of Trade Publishing with Book Fairs and Clubs) are set to unlock operational efficiencies, permanently lower the cost structure, and improve net margins and EBITDA in fiscal 2026 and beyond.
  
• The monetization of substantial real estate assets and an active share repurchase program signal a commitment to return capital to shareholders and improve financial flexibility, which, combined with stronger free cash flow generation from higher earnings, supports higher future EPS and share value.

Scholastic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Scholastic's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 5.2% in 3 years time.
• Analysts expect earnings to reach $91.5 million (and earnings per share of $4.02) by about August 2028, up from $-1.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.6x on those 2028 earnings, up from -348.1x today. This future PE is lower than the current PE for the US Media industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Scholastic Future Earnings Per Share Growth

Risks

• Declining revenue in the Education segment, down 12% year-over-year, reflects ongoing headwinds from lower school and district spending and continued volatility in supplemental curriculum budgets; this secular trend could continue to suppress revenue and profit contribution from a key business line.
  
• A modest decline in International segment revenue and profits is expected for fiscal 2026, tied to cyclicality, strong prior-year performance, and unfavorable foreign exchange, indicating a potential erosion of global revenue growth and earnings stability.
  
• Entertainment segment profitability is projected to be flat or slightly lower despite recent acquisitions and IP enhancements; higher costs (especially amortization from the 9 Story Media acquisition) and delayed revenue recognition tied to long production cycles dampen near-term earnings potential and margin improvement.
  
• Scholastic's heavy reliance on major bestsellers (e.g., Hunger Games, Dog Man) creates concentration risk; if these brands lose relevance or fail to produce new hits with similar impact, both revenue growth and licensing/royalty streams could stagnate or decline, harming long-term EBITDA and net income.
  
• Increased tariffs on sourced products, especially from China, are causing a $10 million rise in anticipated costs for fiscal 2026; although management expects cost savings to offset this, persistent inflation and trade policy volatility could further pressure gross margins and reduce free cash flow if pricing initiatives fall short.

Valuation

• The analysts have a consensus price target of $35.0 for Scholastic based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $91.5 million, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of $26.35, the analyst price target of $35.0 is 24.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.