Five things to watch in markets in the week ahead
Investing.com - BMO Capital raised its price target on McGraw Hill (NYSE:MH) to $25.00 from $24.00 on Monday, while maintaining an Outperform rating on the educational publisher’s stock. The new target represents potential upside from the current stock price of $14.96, with analyst targets ranging from $15 to $28.
The firm noted that recent artificial intelligence developments have "perhaps unfairly weighed on MH shares," despite the company’s strong market position in educational materials. InvestingPro data shows impressive gross profit margins of 80% and expects net income growth this year, suggesting strong operational efficiency.
BMO Capital highlighted McGraw Hill’s market share gains in the K-12 segment, where the company has improved in both core areas (25-30% market share) and supplemental areas (approximately 5% market share), driven by its ALEKS and Achieve3000 products.
In higher education, the research firm reported management’s optimism about fall enrollment figures and continued strength from the company’s Evergreen flywheel strategy, which has been supporting growth.
McGraw Hill targets medium to long-term Adjusted EBITDA margins of 37% or higher by continuing its shift from print to digital materials and leveraging fixed costs, with potential additional upside from AI efficiencies, according to BMO Capital.
In other recent news, McGraw Hill, Inc. has made noteworthy financial and strategic advancements. The company successfully completed a repricing of its Credit Agreement, reducing the applicable interest rate by 50 basis points, which could decrease further if certain credit ratings are maintained. Following its initial public offering, McGraw Hill Education’s outlook was upgraded to positive by Moody’s, which affirmed the company’s B2 Corporate Family Rating. The IPO generated approximately $386 million, which was used to reduce part of its $1.2 billion term loan.
Analyst firms have been optimistic about McGraw Hill’s prospects, with Macquarie initiating coverage with an Outperform rating, citing the company’s substantial market opportunities and resilient revenue streams. William Blair also initiated coverage with an Outperform rating, emphasizing McGraw Hill’s strong financial performance, including an 80% gross margin and a 35% EBITDA margin in fiscal 2025. Meanwhile, BTIG rated McGraw Hill as a Buy, highlighting its transformation into a digital-first company with a robust recurring revenue model. BTIG noted the company’s significant revenue visibility, with an estimated 47% increase in its Remaining Performance Obligation over the past six fiscal years.
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