The McGraw-Hill Companies Inc
) is focusing on restructuring its portfolio of businesses and
concentrating more on high growth operations, thereby enhancing
shareholder value through proper capital allocation.
The company announced that it has 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 Commercial Markets.
Moreover, McGraw-Hill came up with better-than-expected bottom
line results during the recently concluded quarter. The company
posted third-quarter 2012 adjusted quarterly earnings of $1.33
per share that came ahead of the Zacks Consensus Estimate of
$1.30, and increased 10% from the prior-year quarter earnings of
Strong performance of the S&P Indices/ S&P Capital IQ
and Commodities & Commercial boosted the quarterly profits.
Following the healthy results, management now expects adjusted
earnings to be in the range of $3.35 - $3.40 per share for fiscal
2012, up from its earlier guidance of $3.25 - $3.35.
The company provides an attractive investment opportunity on
the profitability front. The company has a TTM pre-tax margin of
20.1%, significantly above the peer group average of 8.9%.
Further, it generates a TTM net margin of 13.7%, well above the
peer group average of 5.6%. The company's TTM Return on Equity
(ROE) of 54.4%, TTM Return on Investment (ROI) of 32.2% and TTM
Return on Asset (ROA) of 13.5% are all better than the peer group
However, McGraw-Hill Education continues to remain a drag on
its financial results as the segment experienced a decrease of
11% in revenue to $836 million during the third quarter,
reflecting a 16% decrease in revenue to $352 million in School
Education Group coupled with a 6% decrease in revenue to $484
million in Higher Education, Professional and International
Group. The Education segment marked a 15% decrease in adjusted
operating profit, which came in at $268 million during the
Further, the market for credit rating, research, investment
and advisory services is highly competitive, which may affect the
company's financials. McGraw-Hill's financial segment, which
consists of the Standard & Poor's brand, competes globally on
the basis of several attributes such as quality of ratings,
research and investment advice, client service, range of products
and services, and technological innovation.
Give the pros and cons, we maintain our Neutral recommendation
on the stock with a target price of $56.00. Moreover,
McGraw-Hill, which competes with
), holds a Zacks #3 Rank, which translates into a short-term
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