A healthy dividend yield of 1.9% and a long-term earnings growth
projection of 14.8% make
The McGraw-Hill Companies Inc.
) an attractive option for investors seeking both growth and
income. This textbook publisher and financial information provider
declared a special dividend on Dec 6, 2012, sending shares to a
52-week high of $57.44 on Dec 11. This Zacks Rank #2 (Buy) has
returned roughly 19% over the past year.
MHP has an impressive record of outperforming quarterly earnings
estimates. In the past 4 quarters, it has an average surprise of
more than 7%.
Dividend Portraying Strength
McGraw-Hill has regularly paid dividends since 1937. The company
has boosted its dividend at a compound annual rate of 9.6% since
1974. It also repurchases shares from time to time. The quarterly
dividend was last increased by 2% to 25.5 cents per share in Jan
2012, which currently yields 1.9%.
On Dec 6, 2012, the company announced a special dividend of $2.50
per share, which was paid on Dec 27. McGraw-Hill's commitment
toward enhancing shareholders' returns reflects its sound liquidity
position and well defined future prospects.
Impressive Bottom-Line Result
On Nov 2, 2012, McGraw-Hill posted third-quarter 2012 earnings of
$1.33 per share, surpassing the Zacks Consensus Estimate by 2.3%
and beating the year-ago earnings by 10%. The company stated that
the strong performance of S&P Indices/S&P Capital IQ and
Commodities & Commercial boosted the quarterly profits.
Total revenue of $1,953 million fell short of the Zacks Consensus
Estimate, but rose 2% year over year due to a revenue increase of
15% at McGraw-Hill Financial. This was partly offset by a decline
of 11% at McGraw-Hill Education. Total operating profit jumped 3%
to $627 million, whereas operating margin expanded 30 basis points
Buoyed by healthy results, management raised its 2012 earnings
guidance to between $3.35 and $3.40 per share, compared to the
earlier projection of $3.25 to $3.35.
McGraw-Hill is slated to release its fourth quarter and full-year
2012 results on Feb 12, 2013.
Earnings Momentum Climbing
The Zacks Consensus Estimate for 2012 inched up 0.6% to $3.42 per
share over the last 60 days, implying year-over-year growth of
17.4%. In the last 30 days, the estimate has risen by 0.3%. The
current estimate is 2 cents above the high end of the company's
For 2013, the Zacks Consensus Estimate is $3.80 per share, which
has climbed a sharp 4.4% in the last 30 days. The current estimate
implies year-over-year growth of 11.2%.
Valuation Stretched, Yet Lucrative
McGraw-Hill currently trades at a forward P/E of 14.13x, reflecting
a 1.7% premium to the peer group average of 13.89x. Its
price-to-book ratio of 8.08 is also at a substantial premium to the
peer group average of 1.12. Given the long-term earnings growth
projection of 14.8%, the PEG ratio comes in at 0.97, below the
benchmark of 1 for a fairly priced stock. The return on equity
(ROE) for the stock looks very impressive. It has a trailing
12-month ROE of 54.4%, compared with 10.8% for its peer group.
The stock price has now started to correlate with the increasing
earnings estimates. Currently, the stock price is in the range of
$50.00-$55.00, and the consensus estimates for 2012 and 2013 are
steadily moving upward. The stock has generated a return of 19%
over the past year, compared with the S&P 500's return of
14.2%. Volume averages roughly 2,453K daily.
Given the earnings growth potential, recent positive earnings
surprises and its ability to sustain dividend increases, the stock
has enough ingredients to lure investors. McGraw-Hill is focusing
on restructuring its portfolio of businesses and concentrating more
on high growth operations, thereby enhancing shareholder value
through proper capital allocation.
In Nov 2012, the company 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
New York-based McGraw-Hill is a diversified publisher and provider
of financial information and media services to customers. It is a
leading textbook publisher and owns one of the top credit rating
agencies (Standard & Poor's). The company has a market cap of
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