McGraw Hill Inc reported upbeat fiscal fourth-quarter results on Thursday, with revenue and adjusted EBITDA surpassing market expectations. However, shares fell as the company issued FY2027 sales guidance that missed consensus estimates, prompting analysts to lower their price targets. The stock declined 3.16% to $11.97 on Friday, reflecting concerns over soft K-12 market dynamics despite strength in Higher Education.

Q4 Performance and Segment Details

McGraw Hill reported revenue of $463.7 million for the quarter, exceeding expectations. Adjusted EBITDA came in at $130.6 million, also topping Street forecasts. Higher Education revenues were a key driver, coming in $258.3 million, up 1.6% year-on-year and $20 million above expectations. However, recurring revenues in this segment declined by 4.9%, though net dollar retention reached 114% and customer satisfaction hit a record high. The K-12 business continued to decline year-on-year, with management noting that dynamics in California and Texas are "choppier than expected."

FY2027 Outlook

Looking ahead, McGraw Hill provided FY2027 sales guidance of $2.115 billion to $2.175 billion, with the midpoint missing the consensus estimate of $2.16 billion. The company projects adjusted EBITDA of $750 million to $790 million, with the midpoint slightly above the consensus of $766 million. Management expects the K-12 business to return to growth in the near term. Philip Moyer, President and Chief Executive Officer, highlighted the strength of the company's strategy and innovation, noting that McGraw Hill is leveraging agentic tools to access new growth avenues, including healthcare.

Analyst Reactions

Following the earnings announcement, analysts adjusted their ratings and price targets. BTIG analyst Marvin Fong maintained a Buy rating but cut the price target from $22 to $19. Needham analyst Ryan MacDonald reiterated a Buy rating and a price target of $19. Other firms also revised their targets downward:

UBS analyst Joshua Chan has maintained a Neutral rating on McGraw Hill while lowering the price target to $14 from $17. The revised target indicates a more cautious near-term outlook for the company's stock performance.

Rating and Price Action

The research note from UBS highlights a shift in valuation expectations for McGraw Hill. Despite maintaining a Neutral stance, the reduction in the price target suggests potential headwinds or a recalibration of growth projections.