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Neutral on McGraw Hill Financial - Analyst Blog

Posted: 8/16/2013 2:20:00 PM
Referenced Stocks: APO;DNB;MCO;MHFI

We have maintained our long-term Neutral recommendation on McGraw Hill Financial, Inc . ( MHFI ) with a target price of $67.00.

Why the Reiteration?

McGraw Hill Financial is restructuring its portfolio of businesses to concentrate more on high-growth operations, thereby enhancing shareholder value through proper capital allocation.

The company reclassified its Education segment as discontinued operations, which was divested to Apollo Global Management LLC ( APO ) for $2.4 billion in cash. McGraw Hill Financial also seeks to increase its ownership in CRISIL to 75% from the existing 53%. Moreover, it completed the sale of Aviation Week to Penton.

Moreover, McGraw Hill Financial has made several strategic investments in its core businesses to drive growth. The formation of S&P Dow Jones Indices coupled with S&P Capital IQ's acquisitions of Credit Market Analysis Limited, QuantHouse, R2 Financial Technologies and position it well against other industry majors like privately held Fitch, Moody's Corp. ( MCO ) and Dun & Bradstreet ( DNB ).

These moves are paying off well as evident from the robust second-quarter 2013 results where top and bottom line registered double-digit growth on account of strong performance of the S&P Ratings and S&P Dow Jones Indices business.

Strong results enabled the company to raise its 2013 earnings guidance range. The company now expects earnings in the range of $3.15 - $3.25 per share compared with its earlier guidance range of $3.10 - $3.20.

Despite the positives, DOJ's civil lawsuit filed against McGraw Hill Financial brings in significant challenges, and compels us to be on the sidelines. However, in the near-term, the stock carries a favorable Zacks Rank #2 (Buy). 

APOLLO GLOBAL-A (APO): Free Stock Analysis Report

DUN &BRADST-NEW (DNB): Free Stock Analysis Report

MOODYS CORP (MCO): Free Stock Analysis Report

MCGRAW HILL FIN (MHFI): Free Stock Analysis Report

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