McGraw-Hill Retained at Neutral - Analyst Blog
31 Dezember 2012 - 4:40PM
Zacks
The McGraw-Hill Companies
Inc. (MHP) is focusing on restructuring its portfolio of
businesses and concentrating more on high growth operations,
thereby enhancing shareholder value through proper capital
allocation.
The company announced that it has
entered into an agreement with Apollo Global to divest its
education division for $2.5 billion. McGraw-Hill stated that the
company will be known as McGraw Hill Financial, upon the completion
of the deal and will primarily focus on capital and commodities
markets and include iconic brands like S&P Ratings, S&P
Capital IQ, S&P Indices, Platts and Commercial Markets.
Moreover, McGraw-Hill came up with
better-than-expected bottom line results during the recently
concluded quarter. The company posted third-quarter 2012 adjusted
quarterly earnings of $1.33 per share that came ahead of the Zacks
Consensus Estimate of $1.30, and increased 10% from the prior-year
quarter earnings of $1.21.
Strong performance of the S&P
Indices/ S&P Capital IQ and Commodities & Commercial
boosted the quarterly profits. Following the healthy results,
management now expects adjusted earnings to be in the range of
$3.35 – $3.40 per share for fiscal 2012, up from its earlier
guidance of $3.25 – $3.35.
The company provides an attractive
investment opportunity on the profitability front. The company has
a TTM pre-tax margin of 20.1%, significantly above the peer group
average of 8.9%. Further, it generates a TTM net margin of 13.7%,
well above the peer group average of 5.6%. The company’s TTM Return
on Equity (ROE) of 54.4%, TTM Return on Investment (ROI) of 32.2%
and TTM Return on Asset (ROA) of 13.5% are all better than the peer
group average.
However, McGraw-Hill Education
continues to remain a drag on its financial results as the segment
experienced a decrease of 11% in revenue to $836 million during the
third quarter, reflecting a 16% decrease in revenue to $352 million
in School Education Group coupled with a 6% decrease in revenue to
$484 million in Higher Education, Professional and International
Group. The Education segment marked a 15% decrease in adjusted
operating profit, which came in at $268 million during the
quarter.
Further, the market for credit
rating, research, investment and advisory services is highly
competitive, which may affect the company's financials.
McGraw-Hill’s financial segment, which consists of the Standard
& Poor’s brand, competes globally on the basis of several
attributes such as quality of ratings, research and investment
advice, client service, range of products and services, and
technological innovation.
Give the pros and cons, we maintain
our Neutral recommendation on the stock with a target price of
$56.00. Moreover, McGraw-Hill, which competes with Pearson
plc (PSO), holds a Zacks #3 Rank, which translates into a
short-term ‘Hold’ recommendation.
MCGRAW-HILL COS (MHP): Free Stock Analysis Report
PEARSON PLC-ADR (PSO): Free Stock Analysis Report
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