This financial services company beat earnings estimates by 12 cents in the company’s most recent quarter, and 12 analysts have increased their forecasts in the past 30 days.
McGraw Hill Financial Inc (MHFI)
From Argus Weekly Staff Report
We think that McGraw Hill Financial Inc (MHFI) is seeing solid business trends. McGraw-Hill has completed a multiyear restructuring and is now focused on its faster-growing financial businesses, including the lucrative and not-very-competitive business of rating bonds. The company has a transparent management team and consistently ‘under promises and over delivers’ with financial results.
The shares are attractively valued at current levels in the mid-$90s. The shares have traded between $84 and $109 over the past 52 weeks. From a technical standpoint, the shares had been in a bullish pattern of higher highs and higher lows since falling sharply after the DOJ civil complaint announcement in 1Q13. However, the recent peak of $109, set last March when a Fed rate hike looked far off in the distance, may prove to be resistance.
Looking ahead, we expect solid earnings growth, multiple expansion and a higher share price as the company continues its transformation and sheds legal risks. We have examined a group of publicly traded peers to the new McGraw-Hill Financial. These companies include Morningstar, IHS Inc., Factset Data Systems, and Moody’s. These companies trade at an average P/E of 21-times projected 2015 EPS, with a range of 18-23. On price/sales, the range is 4.0-6.2. MHFI’s metrics place it in the middle to the lower half of this range, though we believe that it should be toward the high end. Applying premium multiples to MHFI’s forecast sales and earnings, we arrive at a target price of $120.
We look for continued EPS growth and modest multiple expansion into 2016 and think the relative underperformance of the shares represents a buying opportunity.
Jim Kelleher, CFA, Argus Weekly Staff Report, www.argusresearch.com, 212-425-7500, November 23, 2015