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 TheMarkets.com 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).
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