| McGraw Hill Financial is the leading provider of ratings, benchmarks and analytics in the global capital and commodity markets. In fact, most of the information that most investors rely on is compiled and presented each day by the companies of McGraw Hill Financial. This company is truly integral to investors at all levels. But this company has been in the process of expanding, contracting and reinventing itself for decades. As a potential investor in this company it's difficult to base my investing decision strictly on the fundamentals. I'll need to rely on analyst's estimates going forward and the technicals as illustrated in the daily and weekly charts. |  |
- As restructuring comes to a temporary end it appears that the fundamentals of the company are getting back on track.
- The company has recently sold off its educational division and is now a pure financial reporting and analysis corporation.
- A one year total return of 10.22% and a 3 year dividend growth rate of 5.95% is nice but not exceptional.
The Company
| McGraw Hill Financial, Inc. (MHFI), a financial intelligence company, provides credit ratings, benchmarks, and analytics to capital and commodity markets worldwide. The company’s operations consist of four segments: Standard & Poor’s Ratings (S&P Ratings), S&P Capital IQ, S&P Dow Jones Indices (S&P DJ Indices), and Commodities & Commercial (C&C). The S&P Ratings segment offers credit ratings for investors, corporations, governments, municipalities, commercial and investment banks, insurance companies, asset managers, and other debt issuers. The S&P Capital IQ segment provides digital and traditional financial research and analytical tools, which integrate cross-asset analytics, desktop services, and investment recommendations. It serves asset managers, investment banks, investors, brokers, financial advisors, and investment sponsors, as well as companies’ back-office functions, including compliance, operations, risk, clearance, and settlement. The S&P DJ Indices segment maintains various valuation and index benchmarks for investment advisors, wealth managers, and institutional investors. The C&C segment offers information, data, analytic services, and pricing benchmarks for producers, traders, and intermediaries in energy, metals, and agriculture markets, as well as professionals and executives in automotive, construction, and marketing/research services markets. This segment consists of business to business companies that include brands, such as Platts, J.D. Power and Associates, and McGraw-Hill Construction. The company was formerly known as The McGraw-Hill Companies, Inc. and changed its name to McGraw Hill Financial, Inc. in May 2013 after the sale of McGraw-Hill Education to Apollo Global Management, LLC. McGraw Hill Financial, Inc. was founded in 1888 and is headquartered in New York, New York. (Daily Chart) (Weekly Chart) | 18 May 2014 Price $77.98 1yr Target $84.75 Analysts 12 1yr Cap Gain 8.68% Dividend $1.20 Yield 1.54% 1yr Tot Return 10.22% 3yr DGR 5.95% 5yr DGR 4.94% Payout Ratio 22.81% Beta .93 EPS (ttm) $3.27 EPS next yr $4.27 P/E 23.85 PEG 1.63 ROA 43.40% ROE 211.10%  |
McGraw Hill Financial, Inc (MHFI), is a relatively difficult corporation to assess (for me) due to its organizational evolution over the years. Although MHFI started out as a small and simple publishing company it has evolved into a completely different organization today. Today MHFI's primary areas of business are financial, publishing, and business services, and it is the parent company of Standard & Poor's, Platts, J.D. Power and Associates, McGraw Hill Construction, and the majority owner of the S&P Dow Jones Indices joint venture.
The McGraw Hill Book Company started in 1909 when it was formed from a combination of the McGraw Publishing Company (established in 1888) and the Hill Publishing Company (established in 1902). It remained a simple publishing company for decades. In 1972, as part of a deal with Time Inc, it took control of four television stations and entered the broadcast market. With additional acquisitions and buyouts over the years, the McGraw Hill Publishing Company, in 1986, became the largest educational book publisher in the United States.
In 1995 the McGraw-Hill Publishing Company, Inc, became The McGraw-Hill Companies as part of a corporate identity rebranding and re-identification campaign. Then in 2011 the company sold its entire television station group to E.W. Scrips for $212 Million and redirected the company back into the publishing business.
In another tactical change of direction the McGraw Hill Companies sold off its entire educational division to Apollo Global Management in 2012 for $2.5 Billion and exited the education business completely. As a result of this new corporate direction, the McGraw Hill Companies, in 2013, changed its name once again to McGraw Hill Financial Inc.
McGraw Hill Financial now organizes its businesses into four units, based upon the market they are involved in.
All of this has made it relatively difficult to sort through and understand the fundamentals of this evolving corporation from an investor's point of view.
In 1995 the McGraw-Hill Publishing Company, Inc, became The McGraw-Hill Companies as part of a corporate identity rebranding and re-identification campaign. Then in 2011 the company sold its entire television station group to E.W. Scrips for $212 Million and redirected the company back into the publishing business.
In another tactical change of direction the McGraw Hill Companies sold off its entire educational division to Apollo Global Management in 2012 for $2.5 Billion and exited the education business completely. As a result of this new corporate direction, the McGraw Hill Companies, in 2013, changed its name once again to McGraw Hill Financial Inc.
McGraw Hill Financial now organizes its businesses into four units, based upon the market they are involved in.
- Standard & Poor's provides independent investment research including ratings on various investment instruments.
- S&P Capital IQ is a leading provider of multi-asset class and real time data, research and analytics to institutional investors, investment and commercial banks, investment advisors and wealth managers, corporations and universities.
- S&P Dow Jones Indices is the world's largest global resource for index-based concepts, data, and research, it's home to the widely tracked S&P 500 and the Dow Jones Industrial Average, it calculates over 830,000 indices, publishes benchmarks that provide the basis for 575 ETFs, and serves as the DNA for $1.5 trillion of the world’s indexed assets.
- Commercial and Commodities Market which is made up of the following companies - J.D. Power and Associates, McGraw Hill Construction and Platts.
All of this has made it relatively difficult to sort through and understand the fundamentals of this evolving corporation from an investor's point of view.
The Fundamentals
Not being an accountant by training I find the fundamentals of this company difficult to sort through and to completely understand. In simplistic terms, revenues were increasing nicely before 2008 and have been increasing again more recently. The period when revenues were fluctuating was during the time that the television stations and its educational division were being sold off and that resulted in a decrease in revenues. It also caused an increase in profits as a direct result of those exact same sales. For a simple guy like me having difficulty sorting through the past, I'm forced to look closely at the estimates for 2014 and 2015 for possible insight as to whether or not to establish a position in this company's stock. This is not the most comfortable thing to do for a conservative investor like myself. I wish I was a smarter guy but I'm not. I'm the kind of guy that looks for companies with a consistent strategic plan and a management team that executes that plan. And then I judge their success by looking at the fundamentals.
| Year 2015 Est 2014 Est 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 | Revenues $5.48 Bil $5.13 Bil $4.78 Bil $4.45 Bil $3.95 Bil $3.63 Bil $5.87 Bil $6.35 Bil $6.77 Bil $6.25 Bil $6.00 Bil $5.25 Bil $4.99 Bil | Earnings $4.27 $3.77 $4.91 $1.53 $2.27 $2.15 $2.33 $2.51 $2.94 $2.40 $2.21 $1.96 $1.79 | Dividends $1.36 $1.20 $1.12 $1.02 ($2.50) $1.00 $0.94 $0.90 $0.88 $0.82 $0.72 $0.66 $0.60 $0.54 | Payout Ratio 31.85% 31.83% 22.81% 66.67% 44.05% 43.72% 38.62% 35.05% 27.89% 30.00% 29.86% 30.61% 30.16% |
Fortunately for investors, management has steadily maintained an increasing dividend annually throughout this entire process of reorganizing and rebranding the company. They've been able to do this by allowing the payout ratio to increase during periods of reduced earnings and then decreasing the payout ratio as earnings once again increased. This has maintained a dividend growth rate over the last few years in the 5%-7% range which is in excess of the inflation rate over this same period.
Revenue Growth Rates
3yr = 9.50% 5yr = -5.53% 10yr = -0.43%
Earnings Growth Rates
3yr = 31.32% 5yr = 14.36% 10yr = 10.61%
Dividend Growth Rates
3yr = 5.95% 5yr = 4.94% 10yr = 7.56%
The Technicals
 Daily Chart |  Weekly Chart |
The Competition
McGraw Hill Financial Inc is part of the Business Services Industry which is part of the Services Sector. The following companies are also in this industry and are considered to be the larger competitors of McGraw Hill Financial Inc.
Conclusion
Looking at the fundamentals of the company it's obvious that year over year comparisons are difficult because of the changes that have occurred over the last few years, but it's also obvious that over a period of years the company has been steadily growing its revenues and earnings. During this entire time dividends have been increasing each and every year. In addition, with McGraw Hill Financial on the list of Dividend Aristocrats I'm pretty confident that the management of the company will continue to be shareholder friendly in the years ahead.
Like most other stocks this year, MHFI is bouncing between it's Bollinger Bands but has basically gone sideways since the beginning of the year, similar to the overall market. As such, the short term trade for swing traders is between the Bollinger Bands at $72 and $82. For buy and hold investors, waiting for a pull back to the lower Bollinger Band before buying and realizing the best return available is probably the best strategy to implement. Finally, if I already owned the stock (which I don't) I'd be looking for the price to approach the upper Band and then sell covered calls against my position.
With the stock currently listed at approximately $78, the best decision for me at this time is to simply wait for a lower price before committing funds. When I do commit funds, I'll be entering into the trade with the idea of Buy, Write, Collect.
Like most other stocks this year, MHFI is bouncing between it's Bollinger Bands but has basically gone sideways since the beginning of the year, similar to the overall market. As such, the short term trade for swing traders is between the Bollinger Bands at $72 and $82. For buy and hold investors, waiting for a pull back to the lower Bollinger Band before buying and realizing the best return available is probably the best strategy to implement. Finally, if I already owned the stock (which I don't) I'd be looking for the price to approach the upper Band and then sell covered calls against my position.
With the stock currently listed at approximately $78, the best decision for me at this time is to simply wait for a lower price before committing funds. When I do commit funds, I'll be entering into the trade with the idea of Buy, Write, Collect.
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