McGraw-Hill Earnings Preview

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The McGraw-Hill Companies Inc. (MHP), a publisher and provider of financial information and media services, is slated to report its fourth-quarter 2011 financial results on January 31, 2012. The current Zacks Consensus Estimate for the quarter is 57 cents per share. Revenue as per the Zacks Consensus Estimate is $1,536 million.

Third-Quarter 2011, a Synopsis

McGraw-Hill posted soft third-quarter 2011 results. The quarterly earnings of $1.21 a share missed the Zacks Consensus Estimate by a couple of cents, and remained flat from the prior-year quarter’s earnings.

McGraw-Hill’s total revenue of $1,908 million also fell short of the Zacks Consensus Estimate of $2,041 million, and shrinked 2.5% from the prior-year quarter.

McGraw-Hill expects to achieve earnings in the range of $2.81 to $2.86 in fiscal 2011.

Fourth-Quarter 2011 Zacks Consensus

The analysts considered by Zacks expect McGraw-Hill to post fourth-quarter 2011 earnings of 57 cents per share. The current Zacks Consensus Estimate reflects a growth of 3.6% from the prior-year quarter’s earnings. The current Zacks Consensus Estimate for the quarter ranges between 54 cents and 59 cents.

Zacks Agreement & Magnitude

Of the 8 analysts covering the stock, 1 analyst revised its estimate downwards in the last 30 days leaving the Zacks Consensus Estimate stable, while none of the analysts revised their estimates in the upward direction.

Mixed Earnings Surprise History

With respect to earnings surprises, McGraw-Hill has topped as well as missed the Zacks Consensus Estimate over the last four quarters in the range of negative 1.6% to positive 5.8%. The average remained at positive 2.8%, indicating that the company has outperformed the Zacks Consensus Estimate by an average of 2.8% in the trailing four quarters.

Earlier this month, the company announced an increase in dividend, reflecting its plan of utilizing the free cash to enhance shareholders’ return, thereby boosting investors’ confidence in the stock.

McGraw-Hill hiked its quarterly dividend by 2% to 25.5 cents from 25 cents a share. The increased dividend will be paid on March 12, 2012, to stockholders of record as of February 27, 2012.

McGraw-Hill started distributing dividends way back in 1937. Since 1974, the company has boosted its dividend at a compound annual dividend growth rate of around 9.6% and is now among those S&P 500 companies (less than 25), which have raised dividend annually for the 39th straight year.

A dividend hike primarily reflects the company’s sound financial position and defined future prospects. This is quite evident from McGraw-Hill’s balance sheet and cash flow positions. The company ended the third quarter of 2011 with cash and cash equivalents of $1,437.6 million, and generated free cash flow of $627.3 million during the nine-month period.

Currently, we have a ‘Neutral’ recommendation on the stock. However, McGraw-Hill, which competes with Pearson plc (NYSE:PSO), holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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