The McGraw-Hill Companies, Inc. (MHP)

Synergy from several sources suggest that this stock is a buy.

Return on equity and return on working capital has exceeded 20% for each of the last 6 years, with at least half of the years above 30%.
EPS has generally been growing since 1999.

With a share price of $20.79:
- A DCF approach suggests a 84% discount to share value
- A Grahamian approach suggests a 73% discount to share value
- A Buffett style approach based on historical EPS growth suggests a 19.9% projected compounded total return; a sustainable growth suggests a 20.9% projected compounded total return.

Magic Formula Investing included this stock in its top 100 (1/20/2009).

Cramer, on 1/28/2008 said “The stock is very inexpensive. If you think that structured product can come back at all, you've got a real winner. I want to wait. I think you get paid to wait.” Since then, the price is less than half what it was then. It has now become what Cramer refers to as an accidentally high dividend stock. The question still on the table, though, is whether a structured product can come back.

This is a company to hold for life, MHP is the parent company of Standard and Poor’s, the rating agency, it holds some publications among then BusinessWeek and NewsWeek, and also produces education books for all grades.

The rating agency is a must for a globalized world, providing analysis of the public and non public companies. On this field, there are two mayor competitors, S&P and Moodys, Holding about 80% of the market between them. This makes it and oligopoly, where the profit margins are great.

The publishing and educational sections are in a competitive environment, but the products are well accepted and the brand has some prestige among its users for their excellent quality.

The company is valued at 13 times earnings which is a bargain considering that the company has a healthy balance sheet, its brands are well recognized and the management is the best in the industry with a long history of good results. The company hasn’t traded this low since……

Don’t expect many surprises from McGraw Hill, only consistently good results.

McGraw-Hill is a global information services provider that caters to the financial services, education and business information markets through information products and services with brands like Standard and Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The company operates in three segments namely McGraw-Hill Education, Financial Services, and Information and Media.

The school education business has had a very soft year in 2006, due to lack of text book adoptions in Texas which had placed substantial orders last year. This was reflected in the company’s Education segment revenues which declined 6.7% in the first nine months of 2006. But the market is expected to be up by 15% in 2007 which should work in the company’s favor. The company has a whole pipeline of new textbooks like Real Math, Reading with Purpose and The Readers Choice which have been submitted to various states for adoption. They introduced 40 new online courses in 2006, and are planning to add more in 2007 to take advantage of the growing demand for digital products and services at higher education institutions worldwide.

The company has predicted double digit growth for their financial services segment in 2007. The fact that the company has globalized its financial services with presence in Asia and Europe will help meet its targets for 2007. The acquisitions of CRISIL in India and Automotive Resources Asia will help it penetrate the Asian markets more efficiently. In the Information and Media segment the company has announced plans to meet the challenges put forth by the emergence of the internet. The internet is expected to eat into the publishing market both in terms of audience and advertisers in the long run, and hence the company’s internet focused strategy will hold it in good stead. The synergies of the positives in all three segments will ensure McGraw Hill a smooth ride in 2007.

Information is power and McGraw-Hill controls information, which is important in this new digital world where content is king.

McGraw Hill has been so beaten down with the ratings problems in the S&P unit, it is hard to imagine that a company with such strong financials won't bounce back ... unless they are sued out of existence...

Stock as a whole is trading at around 15.5x NTM PE. This is at the low end of the publisher comps and in line with Moody's.Could be some upside to the publisher piece since we are at the beginning of the cycle of educational institutions to purchase new books. As for the ratings piece, it should be trading well-above Moody's, which is also seriously suffering from financial distress. So there is your upside! On the downside? I dont see much at all. People may be frightened about potential litigation, but in the last downturn nothing really happened. Moreover, there are only 3 ratings agencies, the US Gov is not going to do anything to permanently hinder them. Also, they have one of the MOST aggresive share buyback programs on the street which will buoy the stock through any negative pressure. BUY BUY BUY!

Textbook publisher. Will be hurt by students scanning, uploading, and downloading their textbooks online (such as from Textbook Torrents) as well as an increasing move to open courseware (such as MIT's OpenCourseWare). Will be hurt in the long run.

It's a well diversified company, with some very strong brands and growth drivers in it's portfolio.

The stock has performed very well over the last few years, but so has the company underneath it. MHP dominates its industry on its earnings, and the returns from what it does with those earnings. High ROE, no debt, share buy backs, increased dividend, constantly growing earnings. The company got away from the stock a little IMHO, and it's time for the stock to play catch up. This is a solid company, I wouldn't mind owning it in a retirement fund if I were older.

Solid long term company. Consistent in growing free cash flow. Nice share repurchase program. In sectors with high barriers to entry. Will outperform in long term (>5 years)

The California School Budget cuts alone are reason to expect negative sales growth, not to mention every other state in the union as well as a lagging Standard and Poors.

This will be an increase in revenue shortly

This one may see a few bumps over the next year or so, but going long on this due to their product, and short-term waning from the credit 'crisis/crunch/insert c word here'. Price is good, and financials are great. Here's a few:

* Consistently rising EPS over last 10 years except 2001 (obvious reasons)

Returns (10 year average) - these are excellent:
Average ROE 29.66% Result: Good Buy
Average ROC 18.82% Result: Good Buy

Share Buyback (last 10 years)
Amount: 71800000 Result: Good Buy

There's more but I won't bore you with them ... going long here, but expect to not have timed it quite perfectly right now.

The adoption of semantic web technology will give information owners an increased opportunity to profit from their information assets.

An undervalued company on sale at $46. I bought more at $50 but going long will still be a great price.

DOT is organizing millions in construction stimulation for government. Perhaps way early on the picks, but where the gov puts money there is "stimulation"

At these prices, McGraw-Hill is just too cheap. The company is more than the Standard+Poors. The education sector should be relatively recession resistant.

Still has more room to go down. I see low 30's. No one wants what they are offering anymore. Revenue, growth and any interest from anybody is gone.

Got beat down, because of Moody's today is my guess. And they have been killed, by this whole sell off of financials. I'm really only making this play because of Standard and Poors, which may be naive do to MHP being more than just credit rating, but that's why they've been sold off.