Piper Jaffray Overweight On McGraw-Hill Companies (MHP)

Piper Jaffray is reiterating its Overweight rating and $44 price target on shares of McGraw-Hill Companies MHP. In a note sent to clients, Piper Jaffray writes, "MHP remains one of our favorite investment ideas based on improving fundamentals, manageable regulatory risk and fading litigation worries. In this note we consider four alternative valuation methodologies, which suggest upside potential of 21% to 38% in MHP shares over the next 12 months. Having rallied from the high $20s to the high $30s over the last three months, MHP shares have recently stalled in the mid-$30s, creating an opportunity to revisit this high-quality growth story at a valuation we view as particularly compelling. Our "base-case" assumption is that MHP shares should trade at a "normalized" market P/E (defined as the current S&P500 multiple of 15x) on forward earnings. We view this as a relatively conservative target given the stock's historical trading range (see below), as well as the company's appealing ROIC and FCF characteristics, but feel it is appropriate given lingering market concerns over regulatory and litigation risk. 15x 2011E EPS of $2.94 = $44." Shares of MHP lost 6 cents yesterday to close at $36.24.