$1.90
$29.40
bear $1.90
base $16.40
bull $29.40
margin of safety $7.50
market price* $13.98
McGraw Hill sells textbooks, digital courseware and assessment tools. Fiscal 2026 (year ended March 31, 2026) revenue was $2.10 billion: Higher Education $879M, K-12 $885M, International $187M and Global Professional $150M. The company went public in July 2025 and used the proceeds to cut its debt, which still stands at about $2.63 billion. Because the shares are a thin slice left over after that debt, the value per share swings widely with small changes in the business. How we measured earnings. We start from cash from operations and remove swings in working capital, stock compensation and the spending needed to keep the content and platforms current. That spending includes capitalized product development ($119M in fiscal 2026), which we treat as a real recurring cost, not growth. Sales commissions and royalty advances are also treated as ongoing costs. Owner earnings after interest were $0.60, $1.06 and $1.56 per share for fiscal 2024, 2025 and 2026. Because the company's lenders are paid first, we value the business before interest and then subtract net debt. On that basis the business generated about $434M, $451M and $495M in fiscal 2024, 2025 and 2026. Stock compensation was zero before the IPO and $34M in fiscal 2026 (including a one-time catch-up at the IPO); we use a normal run-rate of about $20M in every year so years compare fairly. We anchor on the three-year median of about $430M a year, which spans a large K-12 adoption year and a small one. Fiscal 2026 alone looks stronger (about $508M on the same basis), but it benefited from cash taxes falling to $8.5M from $96.5M as interest costs shrank and tax losses shielded income, so we do not treat it as the normal level. Recent growth in this figure was about 10% in fiscal 2026, and we assume none in year 1 of the base case. Base case, $16.4 per share. Business cash flow stays at about $430M a year for ten years, then slowly fades by 3% a year, because the content the company sells is consumed over time and only steady reinvestment keeps it fresh. That gives a business worth roughly $5.76 billion. It owes about $2.63 billion in debt and leases, less about $100M of cash beyond what it needs, plus an $80M adjustment because the bonds carry coupons of 7.4% to 8.0% against our 6% yardstick. The result is net debt of about $2.63 billion and roughly $3.1 billion left for shareholders. What we credited: only the level the business has already delivered. What we left out: continued Inclusive Access growth (Higher Education revenue grew 12% in fiscal 2026 and Inclusive Access sales grew 23% in fiscal 2025), price increases and a larger K-12 market in fiscal 2027 (the company built inventory for it). They are real, but they depend on adoption decisions and share gains not yet secured. Bear case, $1.9 per share. The company's own risk disclosures say states are considering rules that would require students to opt in to Inclusive Access instead of being enrolled automatically, which management says would hurt Higher Education revenue. We assume that costs about a quarter of Higher Education sales at high margins (about $130M of cash flow) and that K-12 keeps shrinking as it did in fiscal 2026 (down 8.9%), costing a further $40M. Business cash flow falls to about $260M and fades 5% a year afterwards. That is worth about $3.17 billion against roughly $2.8 billion owed, which includes about $260M of extra cost from refinancing the $828M of secured notes due August 2028 and the $599M of 8% notes due August 2029 at about 8.5%. That leaves about $0.4 billion for shareholders. This case is thin: interest would take most of the business cash flow, and the equity has little cushion. Bull case, $29.4 per share. The starting level is the fiscal 2026 result of about $508M, which the business has actually produced. Cash flow grows 3% a year for five years, well below the 12% Higher Education growth recorded in fiscal 2026, as digital and Inclusive Access adoption continues without adverse rules, then stays flat for five years and fades 2% a year afterwards. The business is worth about $8.2 billion against $2.6 billion of net debt, leaving about $5.6 billion. What would make this wrong. The Inclusive Access rule is the largest identified risk, and its timing and scope are unknown. International is weakening (revenue down 7.3%, with a $39M impairment in fiscal 2026 tied to the Middle East). Reported cash flow swings sharply with deferred revenue (a $167M inflow in fiscal 2025 versus a $6M outflow in fiscal 2026), which we removed as timing. We could not tell from the filings how much of the fiscal 2026 tax reduction will persist. Debt is covered comfortably today (about $430M of business cash flow against about $180M of yearly interest) and no covenant issue is disclosed, but the 2028 and 2029 maturities make refinancing the key event for the shares.