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To: Glenn D. Rudolph who wrote (21122)	10/11/1998 3:39:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Price: $23 9/16 12 Month Price Objective: $50 Estimates (Jan) 1997A 1998E 1999E EPS: $0.93 $0.99 $1.50 P/E: 25.3x 23.8x 15.7x EPS Change (YoY): 25.7% 6.4% 51.0% Consensus EPS: $1.00 $1.34 (First Call: 21-Sep-1998) Q3 EPS (Oct): $0.00 $0.00 Cash Flow/Share: $1.63 $1.76 $2.00 Price/Cash Flow: 14.5x 13.4x 11.8x Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: C-1-1-9 Mkt. Value / Shares Outstanding (mn): $1,602.3 / 68 Book Value/Share (Jan-1997): $5.95 Price/Book Ratio: 4.0x ROE 1998E Average: 11.2% LT Liability % of Capital: 39.0% Est. 5 Year EPS Growth: 24.0% Stock Data 52-Week Range: $48-$22 3/4 Symbol / Exchange: BKS / NYSE Options: AMEX Institutional Ownership-Spectrum: 51.1% Brokers Covering (First Call): 14 ML Industry Weightings & Ratings Strategy; Weighting Rel. to Mkt.: Income: Underweight (07-Mar-1995) Growth: Overweight (07-Mar-1995) Income & Growth: Overweight (07-Mar-1995) Capital Appreciation: Overweight (05-Oct-1995) Market Analysis; Technical Rating: Above Average (24-Nov-1997) The views expressed are those of the macro department and do not necessarily coincide with those of the Fundamental analyst. For full investment opinion definitions, see footnotes. Investment Highlights: * Barnes & Noble and Bertelsmann announced a joint venture with barnesandnoble.com * Joint venture should be positive for growth of online business and cut losses for Barnes & Noble in half * Deal should close late in the third quarter. * Raising 1998 EPS estimate by $0.06 to $0.99, up 6% from the prior year to reflect 50% of the fourth quarter internet losses to be absorbed by Bertelsmann. * Raising our 1999 EPS estimate by $0.30 to $1.50, up 51% over the prior year. Fundamental Highlights: * Bertelsmann has announced that it will buy a 50% stake in barnesandnoble.com for $200 million cash. * Both Barnes & Noble and Bertelsmann will contribute $100 million each to the capital of the joint venture. * Initial public offering of barnesandnoble.com postponed until next year. * Barnesandnoble.com will be accounted for as minority interest for Barnes & Noble and will no longer run through the entire income statement. Bulletin United States Retailing - Other Specialty 7 October 1998 Daniel Barry First Vice President Gerri Sommers Assistant Vice President Barnes & Noble Inc Joint Venture with Bertelsmann Should Boost Growth of Online Business BUY Long Term BUY Reason for Report: Joint Venture Analysis Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#10128034 Stock Performance 8 12 16 20 24 28 32 36 40 44 48 0.016 0.018 0.020 0.022 0.024 0.026 0.028 0.030 0.032 0.034 0.036 0.038 0.040 1995 1996 1997 1998 Barnes & Noble Inc Rel to S&P Composite Index (500) (Right Scale)