BTIG Starts McGraw Hill (MH) at Buy

BTIG analyst Marvin Fong initiates coverage on McGraw Hill (NYSE: MH) with a Buy rating and a price target of $19.00.

The analyst comments "We are initiating coverage of McGraw Hill, Inc. with a Buy rating and $19 PT. We see McGraw-Hill as a top operator in the courseware space, a view based not only on a long and ongoing track record of market share gains, but also an expanding portfolio of innovative products that, in some cases, puts McGrawHill years ahead of the competition, in our view. Financially, the company has remade itself into a digital-first business with a high mix of recurring revenue. For example, we estimate MH's Remaining Performance Obligation (RPO) has risen 47% over the past 6 fiscal years to $1.7B, creating significant revenue visibility. Meanwhile, digital has grown from 31% of total revenue in FY15 to 65% currently (and 82% excluding the structurally print-heavy K-12 segment). McGraw-Hill has multiple catalysts to drive future growth, but we believe the most salient ones are: 1) a multi-year K-12 upcycle that should begin after the current school year; 2) considerable runway for growth in Inclusive Access, which is still only half-penetrated in Higher Education; and 3) a compelling slate of recently introduced products that should either improve retention (e.g., MH+, Evergreen), provide new revenue streams (e.g., Sharpen) or lower costs (e.g., Scribe). Financially, we model McGraw-Hill achieving a multi-year period of midsingle-digit growth after it cycles the soft FY26 K-12 adoption year, while steadily expanding already attractive mid-30s Adjusted EBITDA margins. We acknowledge there are overhangs including the majority ownership of its top shareholder and currently above-target leverage, but we see valuation at under 7x CY26 Adjusted EBITDA, two turns below lower-margin peer Pearson (PSON-GB, Not Rated) and 2.5 turns below the Education Technology sector average, as undervaluing an industry-leading franchise. Our $19 PT is based on what we view as a more-than-reasonable 8x CY26 Adjusted EBITDA and represents attractive 40%+ potential upside."

For an analyst ratings summary and ratings history on McGraw Hill click here. For more ratings news on McGraw Hill click here.

Shares of McGraw Hill closed at $13.35 yesterday.

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