McGraw-Hill Companies Inc. $38 - New York symbol MHP

MCGRAW-HILL COMPANIES INC. $38 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 307.0 million; Market cap: $11.7 billion; Price-to-sales ratio: 1.9; Dividend yield: 2.6%; TSINetwork Rating: Average; www.mcgraw-hill.com) gets 70% of its earnings and 45% of its revenue from its Standard & Poor’s division, which provides financial information, including credit ratings on bonds. The company also publishes textbooks and magazines, and owns nine television stations. In 2010, McGraw-Hill’s revenue rose 3.6%, to $6.2 billion from $6.0 billion. Revenue from Standard & Poor’s rose 8.3%, as businesses took advantage of low interest rates to issue more bonds. The textbook division’s revenue rose 1.9%, thanks to higher college enrolment and rising demand for electronic versions of its books. That offset slower demand for new elementary and high-school textbooks. Revenue at McGraw-Hill’s media operations fell 4.9%, mainly because the company sold BusinessWeek magazine in 2009. Without this sale, this division’s revenue would have risen 6.2%. Earnings rose 13.2% in 2010, to $840.0 million, or $2.69 a share. The company earned $742.2 million, or $2.37 a share, in 2009. These figures exclude gains on the sale of BusinessWeek and other assets, as well costs to restructure the textbook and media businesses. McGraw-Hill continues to buy related companies. It recently paid roughly $300 million for TheMarkets.com, a privatelyheld firm that sells investment research and data to hedge funds and other institutional investors. The company can easily afford to keep making purchases like this. Its long-term debt of $1.2 billion is just 10% of its market cap, and it holds cash of $1.5 billion, or $4.97 a share. Continued falling demand for elementary and highschool textbooks could hold back McGraw-Hill’s earnings growth in 2011. Still, the stock trades at a reasonable 13.3 times the company’s likely 2011 earnings of $2.85 a share. McGraw-Hill also raised its quarterly dividend for the 38th consecutive year, to $0.25 a share, up 6.4% from $0.235. The new annual rate of $1.00 yields 2.6%. McGraw-Hill is a buy.