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Houghton Mifflin Upgraded By Goldman Sachs On Attractive Cash Flow

While the Information Services group has outperformed over the past month, shares of Houghton Mifflin Harcourt Co HMHC appear attractive, given the company’s FCF and expectations of accelerating growth, Goldman Sachs’ Andre Benjamin said in a report. He upgraded the rating on the company from Neutral to Buy, with a price target of $20.

Analyst Andre Benjamin expect a cyclical rebound in education spend and margins to enable Houghton Mifflin to generate EBITDA growth of 13 percent, 15 percent and 18 percent through 2018, ahead of the S&P.

“Against a backdrop of growth risks and concerns about lofty market valuation, we see Buy-rated ideas exposed to secular growth that can withstand near-term macro headwinds as particularly compelling,” Benjamin wrote.

Stock Performance

Houghton Mifflin’s shares have lagged the S&P by 29 percent year-to-date, on concerns that the company is likely to address over the next 6 to 12 months. The analyst added that the stock may rally on positive estimate revisions as well as multiple expansion due to:

  1. Accelerating growth
  2. Houghton Mifflin’s new CFO formally providing cost guidance and improved disclosure

“The stock fits our offense/defense theme well, with top quartile EBITDA growth, sources of upside to estimates (greater share cyclical rebound in education spending, share gains or expansion into adjacent markets) and limited exposure beyond the US,” Benjamin commented.

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Aug 2016Goldman SachsUpgradesNeutralBuy
Sep 2015CitigroupUpgradesNeutralBuy
Jun 2015CitigroupMaintainsNeutral

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