Houghton Mifflin: Zacks’ Bear of the Day Play

Houghton Mifflin Harcourt (HMHCSnapshot Report) We are a full week into summer, so by now the kids that didn’t get failing grades are running through the neighborhood and playing games like “kick the can” and “hide and go seek.” The children that didn’t do their homework are finding out that summer school is hot… but with a transition to digital books, analysts are lowering estimates. That makes HMHC a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.

Description

Houghton Mifflin Harcourt provides education solutions for educational institutions and consumers worldwide. It delivers content, technology, and services to approximately 50 million students. Houghton Mifflin Harcourt Company is headquartered in Boston, Massachusetts.

Recent Miss

The company recently posted a loss of $1.12 when the Zacks Consensus Estimate was calling for a loss of $0.98. The topline came in $1M more than expected, a welcome change from the last two quarters where the company failed to meet the top line estimate.

The miss on the bottom line was the third consecutive miss.

Earnings Estimates

Estimates have been falling all year. The Zacks Consensus Estimate for 2015 was calling for a gain of $0.09 at the start of the year, but has since fallen to a loss of $0.51.

The 2016 Zacks Consensus Estimate slipped from a gain of $0.30 to a loss of $0.23 where it currently stands.

Valuation

The valuation for HMHC is a complex picture. Part of the reason for this is that in this year the company is expected to see revenue growth of 11% but will see earnings contract by 182%. Normally we see revenue growth drive earnings growth, but that is why this story is a little more complex than most. The price to book multiple of 2.3x is below the 3.8x industry average. The price to sales multiple of 3x is also showing the stock at a discount to the 3.5x industry average.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represent analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

He also run the new Stocks Under $10 Investor service where he looks for low priced stocks that are seeing positive earnings estimate revisions. This popular service has seen some strong early returns and offers a free trial via the Zacks Investor Collection program that includes Home Run Investor, Value Investor and Income Plus.

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