McGraw-Hill Partners WGU - Analyst Blog


McGraw-Hill Companies, Inc. ( MHP ), a diversified publisher and provider of financial information, and also a provider of media services, recently entered into an agreement with Western Governors University (WGU) to develop a pay-for-performance model.

As per the pay-for-performance model, McGraw-Hill will receive certain variable payments from each WGU student adopting the technologies and services provided by McGraw-Hill Education (MHE).

Under this partnership, McGraw-Hill will receive a fixed discounted amount for providing study materials to the students and is also entitled for an an extra premium from WGU for each student who uses the MHE technology to pass their course.

According to the deal, MHE is supposed to provide e-books and accessibility to various educational sites to WGU's online students. Through this deal, students can improve their performance by utilizing McGraw-Hill LearnSmart online technology, designed specifically to enhance the student's performance.

Digital products and services are now becoming an integral part of both higher education and professional markets. The demand for online study tools (e.g. McGraw-Hill Connect series, McGraw-Hill's LearnSmart, Tegrity) is increasing among college and university students. The market for e-books, mobile devices and online subscription services is also growing.

As a result, McGraw-Hill is banking on this unique model as it has the potential to impart education in an effective way while keeping costs down. Moreover, management believes that this deal will benefit the nation given the utility of MHE's smart educational tools with the support of the universities who are keen to adapt new business models that impart knowledge effectively.

The new business model will provide operational benefits to institutions and learning companies and augment the students' performance as well.

Western Governors University is popular for its innovative style of imparting knowledge to their students. Therefore, the recent deal with McGraw-Hill supports WGU style of providing education to students where students gain knowledge effectively rather than gaining credit hours by attending classes.

McGraw-Hill recently disposed of its Broadcasting Group in order to re-evaluate its portfolio of core businesses and concentrate more on global brands, thereby enhancing shareholders' value through proper capital allocation. The company believes that the business was cyclical and advertising-based,  and therefore could not be considered its core business.

McGraw-Hill's results could be negatively impacted by a lower volume of debt securities issued in the capital markets. Financial distress of the recent kind could either dent investor's demand for debt securities or make issuers reluctant to issue such securities. In addition, increase in interest rates or credit spreads, may also adversely affect the general level of debt issuance.

Therefore, we have a long-term Neutral recommendation on McGraw-Hill, which competes with Pearson Plc ( PSO ). Moreover, the company carries a Zacks #3 Rank, which translates into a short-term Hold rating.

MCGRAW-HILL COS (MHP): Free Stock Analysis Report
PEARSON PLC-ADR (PSO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: MHE , MHP , PSO

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