On May 9, 2014, we issued an updated research report on
McGraw Hill Financial, Inc.
) following the company's first-quarter 2014 earnings results.
Headquartered in New York City, McGraw-Hill Financial is the
provider of financial information and owns one of the top credit
rating agencies (Standard & Poor's).
The company primarily focuses on capital and commodities markets
and includes iconic brands like S&P Ratings, S&P Capital
IQ, S&P Indices and Platts. Moreover, after offloading its
Education segment and Aviation week, McGraw-Hill now seems to be
well positioned to focus on high margin business. The company is
now putting more emphasis on its core financial areas that would
help it emerge as a leader among rating providers, benchmark
providers and analytics in the global capital and commodity
Further, McGraw Hill Financial's, strategic investments in
businesses, will help it to generate long-term profitability. The
formation of S&P Dow Jones Indices coupled with S&P Capital
IQ's acquisitions of Credit Market Analysis Limited, QuantHouse, R2
Financial Technologies and TheMarkets.com along with a significant
stake (68%) in India's leading rating agency CRISIL, position it
well against its competitors to grab a wider market.
In addition, the company, which competes with
FactSet Research Systems Inc.
), has maintained a shareholder friendly program that makes it an
ideal pick for yield seeking investors. During the quarter,
McGraw-Hill Financial bought back 2.2 million shares. In Dec 2013,
after completion of existing share buyback authorization, the board
of directors announced a new 50 million share repurchase program.
The company also hiked its dividend by 7.1% in Jan 2014.
Moving on to earnings, on Apr 29, 2014, McGraw Hill Financial
posted first-quarter 2014 earnings per share of 89 cents beating
the Zacks Consensus Estimate by a couple of cents and increasing
12% year over year. However, total revenue of $1,236 million fell
short the Zacks Consensus Estimate of $1,237 million although it
grew 5% year over year.
In spite of an earnings beat, estimates for McGraw Hill Financial
have not shown much upward revision as the analysts remain
concerned about the impending verdict on the Department of
Justice's (DoJ) $5 billion civil fraud case against S&P
S&P Ratings Services is accused of deliberately providing high
ratings to the U.S. collateralized debt obligations (CDOs) and
residential mortgage backed securities (RMBS) in 2007 that
underperformed and fueled the collapse of the housing market. The
U.S. Government stated that S&P did not properly highlight the
credit risks related to the mortgage securities issued by the
Though the company received a favorable court ruling on the case on
Apr 15, 2014 that should help in defense but the final outcome of
the case still remains uncertain, thereby keeping the analysts on
sidelines. The next hearing for the case is slated for May 27,
2014. Further, market volatility and stiff competition
continue to be added concerns.
Currently, McGraw Financial carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
A better-performing stock in the same sector worth investment is
) which sports a Zacks Rank #2 (Buy).
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