We have maintained our long-term Neutral recommendation on
The McGraw-Hill Companies Inc.
) with a target price of $48.00, following its fourth-quarter
Why the Reiteration?
McGraw-Hill's strategic investments in businesses facilitate
it to generate long-term profitability. The formation of S&P
Dow Jones Indices with
CME Group Inc
) coupled with S&P Capital IQ's acquisitions of Credit Market
Analysis Limited, QuantHouse, R2 Financial Technologies and
TheMarkets.com position it well against its competitors like
Thomson Reuters Corporation
FactSet Research Systems Inc
) and Bloomberg to grab a wider market through superior
functionality and investor oriented services and in turn help
boost the top- and bottom-line results of the company.
McGraw-Hill posted fourth-quarter 2012 adjusted quarterly
earnings of 72 cents a share that came in line with the Zacks
Consensus Estimate but jumped 56% year over year. Total revenue
escalated 22% year over year to $1,226 million, reflecting strong
performance across all its divisions. Following healthy results,
management now expects adjusted earnings to be in the range of
$3.10 to $3.20 per share for 2013, reflecting solid growth of 15%
year over year.
Going forward, McGraw-Hill along with its iconic brands
remains focused on high growth operations to drive long-term
profitability. However, the market for credit rating, research,
investment and advisory services is highly competitive and we
prefer to maintain our recommendation on the stock.
Moreover, The U.S. Department of Justice has filed a $5
billion civil fraud case against S&P ratings, following which
the company lost a significant amount of market value. Adding to
its woes, Moody's has cut the debt rating of McGraw-Hill by two
levels -- to Baa2 from A3 -- and can reduce it again. Evidently,
these developements have severely impacted the company.
The pros and cons of the stock are well defined through our
Zacks Rank #3 (Hold).
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