MH

We rate McGraw Hill, Inc. (MH) as a Reduce with a composite score of 45.5/100 at a current price of $13.24. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in value (70th percentile) and quality (65th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (28th percentile) and momentum (29th percentile) tempers our overall conviction. We assign a Narrow Moat rating (45/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

McGraw Hill, Inc. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.5/100 places it at rank #2723 in our full 7,333-stock universe. At $2.4B in market capitalization, McGraw Hill, Inc. is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -3% combined with momentum at the 29th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 80% (+37.7pp vs sector) narrow to operating margins of 18% (+16.6pp vs sector) and net margins of 6.7%, yielding a gross-to-net conversion rate of 8%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $13.24, McGraw Hill, Inc. is trading near fair value based on current fundamentals. Our value factor score of 70/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 13.7x (a 38% discount to the sector median of 22.3x), EV/EBITDA of 7.5x (discounted to peers), P/B of 3.4x, P/S of 1.1x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to McGraw Hill, Inc.. The stock presents a balanced risk profile: significant leverage (336% debt-to-equity). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (336% debt-to-equity). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 56th percentile and quality factor at the 65th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 80% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate McGraw Hill, Inc.'s capital allocation as Poor. Key concerns include elevated leverage (336% D/E). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — McGraw Hill, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, McGraw Hill, Inc. receives a Reduce rating with a composite score of 45.5/100 (rank #2723 of 7,333). Our quantitative framework assigns a Narrow Moat (45/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 49/100.

Our analysis does not support a constructive view on McGraw Hill, Inc. at this time. The combination of the current quantitative profile, medium uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.