Finance

McGraw Hill Stock Soars 19%: Can Digital Growth Outpace Debt Concerns?

McGraw Hill’s stock jumped after exceeding profit expectations, though free cash flow and debt are concerns.

November 12, 2025, 1:43 PM

The New York Stock Exchange facade draped in a massive red banner promoting McGraw Hill's IPO.

The NYSE building is decorated with a large red banner for the McGraw Hill initial public offering event. By rblfmr / Shutterstock.com.

Executive Summary

McGraw Hill’s stock surged 19% after reporting an adjusted profit of $1.40 per share, significantly exceeding analyst expectations, and raising its full-year guidance.

Despite declines in overall revenue and GAAP profits, the company reported growth in re-occurring and high-margin digital revenue, gained market share, and expanded its gross profit margin.

The company faces concerns over a 68% decline in free cash flow for the first half of the fiscal year and a substantial $3 billion net debt load, leading to analyst reservations about its investment appeal.

The Story So Far

McGraw Hill’s stock surge and raised guidance are primarily driven by its ability to exceed adjusted profit expectations, fueled by growth in high-margin digital and re-occurring revenue, and an expanded gross profit margin from AI tool adoption. However, this positive market reaction is significantly complicated by underlying financial health concerns, including a substantial decline in free cash flow and a heavy $3 billion net debt load, which analysts view as significant long-term investment deterrents.

Why This Matters

McGraw Hill’s stock saw a significant surge following an adjusted profit beat and raised guidance, indicating investor confidence in the company’s strategic shift towards high-margin digital and re-occurring revenue streams, alongside successful AI integration and margin expansion. However, this positive market reaction is tempered by a substantial decline in free cash flow and a heavy debt load, leading analysts to express skepticism about the company’s long-term investment appeal despite its operational improvements.

Who Thinks What?

McGraw Hill highlighted exceeding analyst profit expectations and raising full-year guidance, emphasizing growth in re-occurring and high-margin digital revenue, market share gains, and margin expansion driven by AI-powered tools.

Investors reacted positively to McGraw Hill’s better-than-expected adjusted profit and raised guidance, causing the company’s stock to surge significantly.

Rich Smith, an analyst for The Motley Fool, expressed reservations about McGraw Hill’s investment appeal, citing concerns over declining free cash flow and a substantial net debt load, despite the reported earnings beat.

McGraw Hill’s stock surged 19% on Wednesday, November 12, 2025, after the educational and professional publisher reported an adjusted profit of $1.40 per share for its fiscal second quarter of 2026, significantly exceeding analyst expectations of $0.35 per share. The company also raised its full-year guidance, despite declines in overall revenue and GAAP profits.

Quarterly Performance

For the second quarter, McGraw Hill’s revenue decreased by 2.8% to $669.2 million, and generally accepted accounting principles (GAAP) profits fell 21% to $105.3 million. Despite these declines, the company reported growth in certain key areas.

The publisher highlighted an increase in “re-occurring revenue,” which grew 6.5% to $422.4 million, alongside a 7.6% surge in high-margin digital revenue. McGraw Hill also stated it gained “notable” market share during the quarter and expanded its use of AI-powered tools, contributing to a 150 basis point expansion in its gross profit margin, reaching a healthy 79.2%.

Cash Flow and Debt Concerns

Despite the better-than-expected adjusted profit, the company experienced a significant decline in free cash flow (FCF). For the first half of the fiscal year, FCF dropped by 68% to $119.2 million, largely attributed to a sharp fall in operating cash flow and an increase in capital expenditures.

McGraw Hill also carries a substantial net debt load of $3 billion. When factoring in this debt, the company’s enterprise value-to-free cash flow ratio rises to approximately 22 times.

Analyst Perspective

Rich Smith, an analyst for The Motley Fool, expressed reservations regarding the company’s investment appeal. He noted that the falling free cash flow and heavy debt load made McGraw Hill stock appear to be an unfavorable investment, despite the reported earnings beat. Smith stated that he “fails to see how that would make McGraw Hill stock a buy.”

Outlook

While McGraw Hill’s latest earnings report exceeded analyst profit forecasts and showed strength in digital and re-occurring revenue, the underlying financial health presents a mixed picture. Significant declines in free cash flow and a substantial debt burden raise questions about the long-term investment appeal of the company’s stock.