Barron's Article Makes Comments on McGraw-Hill (MHP); Patient Investors May See Significant Upside

October 12, 2009 11:46 AM EDT

Barron's article makes comments on McGraw-Hill (NYSE: MHP):

Some Positive Highlights Include:

1) MHP, owner of Standard & Poors, saw bond issuance rise 50% in Q3 as corporations worldwide took advantage of low interest rates. S&P deal rating currently contribute up to 75% of MHP's earnings.

2) McGraw-Hill is currently at historically low valuation and its profit outlook is brightening.

3) The stock carries a 3.3% dividend yield, and its free-cash-flow yield is 8.5%.

4) JPMorgan analyst rates the stock at Overweight, price target $35 and sees attractive valuation.

5) Next year's results could benefit from a pick-up in the elementary- and high-school textbook business, currently pressured by state and local budget constraints.

6) Debt-rating business appears to have bottomed, and media profits are expected to rise.

7) A doomsday prospect of multiple billion-dollar judgments against S&P looks remote.

8) Our sum-of-the-parts analysis, based on projected 2010 operating profits, suggests a conservative value for McGraw-Hill of $35 a share.

9) Don't expect to see a breakup of McGraw-Hill. CEO McGraw is adamantly opposed to the idea.


Some Negative Highlights Include:

1) Investors are shunning MHP amid legal, regulatory and competitive concerns to both S&P and its chief rival, Moody 's (NYSE: MCO).

2) Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) , recently reduced its big stake in Moody's.

3) Threats to S&P in the courts and in Washing- ton -- reflecting the fallout from disastrously misguided ratings on hundreds of billions of dollars of dubious mortgage securities and various structured entities --aren't trivial.

4) Investors may need some patience, because there have been dozens of lawsuits against McGraw-Hill that are unlikely to be resolved soon.

5) There has been greater competition in the ratings business in recent years, something Washington has sought to foster.

The McGraw-Hill Companies, Inc. provides information services and products to the financial services, education, and business information markets worldwide.

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