Will DoJ's Verdict Stomp Over McGraw Hill's Upbeat Earnings?

Zacks

On Aug 11, 2014, we issued an updated research report on McGraw Hill Financial, Inc. (MHFI) following the company’s second-quarter 2014 results.

The company’s adjusted earnings of $1.06 per share from continuing operations grew 15% as well as beat the Zacks Consensus Estimate of 98 cents. Total revenue increased 8% to $1,346 million and surpassed the Zacks Consensus Estimate of $1,292 million owing to strong performance at the company’s segments.

After the impressive results, management upgraded the full-year 2014 earnings guidance. McGraw Hill Financial now expects adjusted earnings in the range of $3.80–$3.90 per share, up from $3.75–$3.85 per share projected earlier.

In spite of an earnings beat, estimates for McGraw Hill Financial have not shown any upward revision remaining constant at $3.87 and $4.40 per share for 2014 and 2015 respectively. Analysts remain concerned about the impending verdict on the Department of Justice’s (DoJ) $5 billion civil fraud case against S&P Ratings. Moreover, anticipated weakness in structured finance and difficult debt issuance environment adds to the woes.

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, the final outcome of the case still remains uncertain. The company has submitted several documents under the Wells Notice in Jul 2014. Though management declined to make any further statements on the matter, it expects legal expenses in the upcoming quarters to shoot up.

Currently, McGraw Financial carries a Zacks Rank #2 (Buy). Headquartered in New York City, McGraw-Hill Financial is the provider of financial information, competing with FactSet Research Systems Inc. (FDS) and Moody’s Corp. (MCO).

Key Picks from the Sector

Another stock in the same sector worth investment is The ADT Corporation (ADT) which holds same rank as Mc-Graw Hill Financial.

Read the Full Research Report on MCO
Read the Full Research Report on FDS
Read the Full Research Report on MHFI
Read the Full Research Report on ADT


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