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To: Wayners who wrote (57934)	5/22/1999 8:08:00 PM
From: Glenn D. Rudolph	Respond to of 164684

Price: $33 12 Month Price Objective: $52 Estimates (Jan) 1998A 1999E 2000E EPS: $0.76 $1.06 $1.40 P/E: 43.4x 31.1x 23.6x EPS Change (YoY): 39.5% 32.1% Consensus EPS: $1.13 $1.49 (First Call: 13-May-1999) Q2 EPS (Jul): -0.08 -0.01 Cash Flow/Share: $2.06 $2.28 $2.68 Price/Cash Flow: 16.0x 14.5x 12.3x Dividend Rate: Nil Nil Nil Dividend Yield: Nil Nil Nil Opinion & Financial Data Investment Opinion: C-1-1-9 Mkt. Value / Shares Outstanding (mn): $2,244 / 68 Book Value/Share (Jan-1997): $5.95 Price/Book Ratio: 5.5x ROE 1999E Average: 11.2% LT Liability % of Capital: 39.0% Est. 5 Year EPS Growth: 23.0% Stock Data 52-Week Range: $48-$22 3/16 Symbol / Exchange: BKS / NYSE Options: AMEX Institutional Ownership-Spectrum: 32.4% Brokers Covering (First Call): 12 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: Below Average (27-Apr-1999) 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: * Reported first quarter loss per share of $0.02, up from a $0.05 loss per share last year on a 13% superstore sales gain * Results were $0.03 above our estimate and the “Street” consensus * Loss per share comprised of $0.10 internet loss (up from $0.12 last year) and $0.08 retail profit (up 14% from last year) * Total BN.com losses increased 70%, but internet loss per share declined due to BKS' 50% equity in net loss this year (Bertelsmann owns the other 50%) vs. 100% last year * Strong 5.4% comps should help assuage concerns of internet's adverse effect on bricks and mortar business Fundamental Highlights: * Internet sales increased 259% to $32 million in the first quarter * Planned IPO of roughly 20% of BN.com business planned for late May (after which BKS and Bertelsmann's equity in net loss should be 40%) * Our price objective is $52 reflecting a 37 times multiple of 2000 EPS compared with the current multiple of 32 times 1999 EPS Bulletin United States Retailing - Other Specialty 21 May 1999 Daniel D. Barry First Vice President Glenn M. Salzman Industry Analyst Barnes & Noble Inc Strong Comps Should Ease Concerns Of Internet Competition BUY Long Term BUY Reason for Report: First Quarter Earnings Analysis Merrill Lynch & Co. Global Securities Research & Economics Group Global Fundamental Equity Research Department RC#10114159 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 1996 1997 1998 1999 Barnes & Noble Inc Rel to S&P Composite Index (500) (Right Scale)