On Nov 4, 2013, we reiterated our Neutral recommendation on
business service provider
McGraw Hill Financial, Inc.
). This was based on the company's better-than-expected
third-quarter 2013 results, its upbeat outlook for 2013 and the
strategic growth initiatives undertaken, offset by legal issues
and a competitive backdrop.
DUN &BRADST-NEW (DNB): Free Stock Analysis
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MCGRAW HILL FIN (MHFI): Free Stock Analysis
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Why the Reiteration?
McGraw Hill Financial posted third-quarter 2013 adjusted earnings
per share of 80 cents on Oct 22, which rose 13% year over year
and surpassed the Zacks Consensus Estimate by couple of cents.
Moreover, total revenue increased 7% year over year to $1,194
million, aided by strong performance across all business
segments. Total revenue also came ahead of the Zacks Consensus
Estimate of $1,180 million.
Buoyed by strong results, McGraw Hill Financial raised its 2013
earnings guidance. The company now expects earnings in the range
of $3.25-$3.30 per share, up from the earlier projection of
$3.15-$3.25. The current Zacks Consensus Estimate stands at $3.30
per share for 2013.
Moreover, McGraw Hill Financial's strategic investments in
businesses facilitate it to generate long-term profitability. The
formation of S&P Dow Jones Indices, along with S&P
Capital IQ's acquisitions of Credit Market Analysis Limited,
QuantHouse, R2 Financial Technologies and TheMarkets.com position
it well against competitors. These measures have also
enabled the company to grab a wider market through superior
functionality and investor oriented services and in turn boost
top and bottom-line performance.
Additionally, McGraw Hill Financial, which competes with
Dun & Bradstreet Corp.
), has been enhancing shareholders' value through repurchases and
dividend payouts. For the nine months of 2013, the company bought
back 15 million shares. In January, it raised the annual dividend
by 9.8% to $1.12. Notably, since 1974, the company has boosted
its dividend at a compound annual dividend growth rate of around
However, McGraw Hill Financial's division, S&P faces a $5
billion civil fraud case from the U.S. Department of Justice.
S&P has been charged for deliberately providing high ratings
in 2007 to U.S. collateralized debt obligations (CDOs) and
residential mortgage-backed securities (RMBS) that underperformed
and spurred the collapse of the housing market. Though the
company applied for dismissal of the complaint, the court has
ruled it out. This legal quagmire keeps investors wary.
Additionally, volatility in markets with respect to the volume of
debt issued by capital markets could dent the company's results.
A highly fragmented market for credit rating, research as well as
investment and advisory services remain a threat to top-line
growth. Moreover, industry bellwethers like
) and Fitch Ratings offer significant competition to McGraw Hill
Other Stocks to Consider
Currently, McGraw Hill Financial carries a Zacks Rank #2 (Buy). A
better performing stock in the business services sector is
Nielsen Holdings N.V.
), which carries a Zacks Rank #1 (Strong Buy).