McGraw Hill (MHFI) Research Report Update - Analyst Blog

On May 9, 2014, we issued an updated research report on McGraw Hill Financial, Inc. ( MHFI ) following the company's first-quarter 2014 earnings results.

Headquartered in New York City, McGraw-Hill Financial is the provider of financial information and owns one of the top credit rating agencies (Standard & Poor's).

The company primarily focuses on capital and commodities markets and includes iconic brands like S&P Ratings, S&P Capital IQ, S&P Indices and Platts. Moreover, after offloading its Education segment and Aviation week, McGraw-Hill now seems to be well positioned to focus on high margin business. The company is now putting more emphasis on its core financial areas that would help it emerge as a leader among rating providers, benchmark providers and analytics in the global capital and commodity markets.

Further, McGraw Hill Financial's, strategic investments in businesses, will help it to generate long-term profitability. 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 TheMarkets.com along with a significant stake (68%) in India's leading rating agency CRISIL, position it well against its competitors to grab a wider market.

In addition, the company, which competes with FactSet Research Systems Inc. ( FDS ), Moody's Corp. ( MCO ), has maintained a shareholder friendly program that makes it an ideal pick for yield seeking investors. During the quarter, McGraw-Hill Financial bought back 2.2 million shares. In Dec 2013, after completion of existing share buyback authorization, the board of directors announced a new 50 million share repurchase program. The company also hiked its dividend by 7.1% in Jan 2014.

Moving on to earnings, on Apr 29, 2014, McGraw Hill Financial posted first-quarter 2014 earnings per share of 89 cents beating the Zacks Consensus Estimate by a couple of cents and increasing 12% year over year. However, total revenue of $1,236 million fell short the Zacks Consensus Estimate of $1,237 million although it grew 5% year over year.

In spite of an earnings beat, estimates for McGraw Hill Financial have not shown much upward revision as the analysts remain concerned about the impending verdict on the Department of Justice's (DoJ) $5 billion civil fraud case against S&P Ratings.

S&P Ratings Services is accused of deliberately providing high ratings to the U.S. collateralized debt obligations (CDOs) and residential mortgage backed securities (RMBS) in 2007 that underperformed and fueled the collapse of the housing market. The U.S. Government stated that S&P did not properly highlight the credit risks related to the mortgage securities issued by the investment banks.

Though the company received a favorable court ruling on the case on Apr 15, 2014 that should help in defense but the final outcome of the case still remains uncertain, thereby keeping the analysts on sidelines. The next hearing for the case is slated for May 27, 2014. Further, market volatility and stiff competition continue to be added concerns.

Currently, McGraw Financial carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

A better-performing stock in the same sector worth investment is Nielsen N.V. ( NLSN ) which sports a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.

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

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