After reviewing Reed Elsevier's (REL) solid second-half and full-year results, we reaffirm our view that the company has competitive advantages despite some near-term headwinds. Full-year sales growth of 2%, excluding dispositions in the smaller Reed Business Information segment, was on par with our expectations and we're comfortable with our 3% sales growth estimate for 2011.
Reed Elsevier's two major segments with the greatest competitive positioning—Elsevier and LexisNexis—both posted solid results given headwinds facing the businesses. Elsevier, which includes its science, technology and health sciences publishing units, posted 2% sales growth. A difficult academic budget environment was not a surprise, and kept a lid on growth. However, we're expecting slight improvement in 2011. The LexisNexis segment achieved sales growth of 1% in 2010, with risk solutions outpacing legal information growth. The company's legal publishing segment continues to be a lagging indicator, as law firm hiring is still in recovery mode. Also, competition from Thomson continues to serve as a headwind for Reed Elsevier. Overall adjusted operating margins of 26% were flat with the prior year, with Elsevier margin improvement offsetting lower profitability for LexisNexis. We think the Reed Elsevier's shares are slightly overvalued at the current price.