Buy McGraw-Hill Today At A Huge Discount

| About: S&P Global (SPGI)

The United States lawsuit against Standard and Poor's has provided a great buying opportunity for the McGraw-Hill Companies (MHP) and Moody's (NYSE:MCO). While the lawsuit is trying to promote competition in the ratings industry, a 2006 law "discourages entry and discourages new ideas and new ways of doing things," says Lawrence White a professor of economics at New York University's Leonard N. Stern School of Business. The big three, McGraw-Hill, Moody's and Fitch are responsible for 96% of the ratings industry.

Let's look at some earnings history and future projections for McGraw-Hill:













So far for 2012, earnings have added up to $2.69, and they have beat earnings projections for the last 4 quarters. Estimates for the 4th quarter for 2012 are $0.72.

On January 30th, McGraw-Hill increased their dividend by almost 10%, to $1.12 per share, which is now a decent 2.5% yield at $44.50 per share. McGraw-Hill is one of the few companies that have increased their dividend every year for the last 40 years.

On February 12th, McGraw-Hill will announce earnings. A great earnings report could bounce this stock right back to the highs we saw before this downturn. The 3rd quarter results were very positive, as McGraw-Hill financial reported a 15% increase in revenue and McGraw-Hill Education posted an 11% decline. This is great news, as McGraw-Hill sold their education company to Apollo Global Management (NYSE:APO) for 2.5 Billion. The growth engine for this company is here to stay.

What does this mean for an investor? Buy McGraw-Hill and Moody's today as a discount. I'm not the only one with this recommendation, as Raymond James also tagged this stock with a strong buy rating and a $62 price target. Their business will not go away, and any penalty that may be assessed against them will just be a slap on the hand. Reading this article, there was no profit for S&P for selling bonds they have rated, so I'm not quite sure what was gained by the ratings for these companies and if the lawsuit has much merit. At most, a small penalty will be assessed and the way they assess bonds may be altered for the future. The business model and the profits are still going to be there. A forward PE of under 12 and continued earnings growth projected for 2013 should continue to drive McGraw-Hill even beyond prior 52 week highs.

Disclosure: I am long MHP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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