McGraw Hill is shifting from legacy publishing to a higher-margin digital education platform, with recurring revenue, AI-enabled products, and Higher Education momentum supporting the case. Leverage and K-12 volatility remain the main risks, but the stock looks undervalued versus its earnings power.
McGraw Hill(MH) fits a balanced, moderate-risk investment profile as a cash-generative education software and content business that is still being valued like a messy post-IPO publisher. The core bullish case rests on a few hard facts. FY2026 revenue reached $2.103B, adjusted EBITDA was $614M, gross margin was 84.5%, and recurring revenue climbed to $1.541B. Higher Education was the clear engine, with FY2026 revenue of $879M versus $783M in FY2025, while digital revenue reached $1.434B for the year. That is not a static textbook story. It is a high-margin digital transition with visible contract economics.
The restraint in the thesis is leverage and uneven segment mix. At March 31, 2026, total debt was $3.26B against $389.8M of cash on the annual balance sheet data, and net leverage was 2.8x per the FY2026 investor presentation. K-12 revenue also fell sharply to $430M in FY2026 from $970M in FY2025 because adoption cycles can swing results hard from year to year. That makes MH less of a clean compounder than the margin profile first suggests.
The medium-term setup still leans favorable. Management reported FY2027 analyst revenue estimates of $2.164B and EPS of $1.77, following FY2026 GAAP net income of $35M and a Q3 FY2026 guidance raise. The stock also trades at 9.50x forward earnings, while the average analyst target sits at $20.33. For a company with 84.5% gross margin, 29.2% adjusted EBITDA margin, $1.671B of RPO, and a growing AI-enabled product stack, that multiple looks more discounted than deserved. The stock is not risk-free, but the facts support a Buy rating for investors willing to accept procurement-cycle noise in exchange for improving earnings power and debt paydown.
McGraw Hill(MH) is a long-established education company founded in 1888 and headquartered in Columbus, Ohio. It serves K-12, higher education, professional, and international markets, with products spanning curriculum, courseware, adaptive learning, and professional reference tools. The company has about 4,200 employees and listed publicly on the NYSE on July 24, 2025.
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Get Full Access →The business is organized into four operating segments: K-12, Higher Education, Global Professional, and International. Its model blends print and digital delivery, but the economics are moving decisively toward digital and recurring revenue. For FY2026, digital revenue was $1.434B and recurring revenue was $1.541B. Segment-level RPO totaled $1.671B as of March 31, 2026, led by K-12 at $1.249B and Higher Education at $322M.
Management has been explicit about the repositioning. On the February 11, 2026 earnings call, then-Chair Simon Allen said McGraw Hill was "positioned for a return to growth in fiscal year 2027," while new CEO Philip Moyer described the company as well positioned to lead "this next generation of learning." Strip away the corporate polish and the plain-English version is simple: MH is trying to convert a legacy content franchise into a software-like education platform with better retention, better pricing power, and better margins.
Higher Education is the strongest segment today. FY2026 revenue rose to $879M from $783M in FY2025. In fiscal Q3 2026 alone, segment revenue grew 24% YoY to $225M, with recurring revenue up 33.5% and digital revenue up 24.8%. Management said Higher Education reached a record 30% market share according to MPI, and Inclusive Access represented 60% of Higher Education revenue in Q3. That mix matters because institution-wide digital access tends to be stickier and less exposed to the old textbook resale mess.
K-12 is the swing factor. FY2026 revenue dropped to $430M from $970M in FY2025, which looks brutal on the surface. The explanation is adoption-cycle timing, not a collapse in the franchise. In Q3 FY2026, K-12 revenue was $128M, down 14.6% YoY, and management tied that decline to a smaller market year after strong prior-year capture rates. The more useful data point is that McGraw Hill said it ranked first or second in 10 of the top 11 adoption opportunities and highlighted active pilots in California math plus positioning in Florida ELA and Texas math.
Global Professional is smaller but steady. FY2026 revenue was $150M, flat with FY2025, while Q3 revenue increased 2%. Management said digital medical and engineering growth offset a noncore print exit. This segment is not the headline growth engine, but it gives MH another place to reuse content and AI tools, including AI Reader and Clinical Reasoning.
International remains the weakest segment. FY2026 revenue was $187M versus $201M in FY2025, and Q4 revenue was $41M versus $43M a year earlier. The decline is manageable rather than catastrophic, but it does show that MH is still stronger in its domestic institutional channels than in global expansion. For now, the investment case does not need International to be heroic. It just needs the segment to stop leaking while Higher Education and digital K-12 do the heavy lifting.
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The flagship product story centers on Evergreen, ALEKS, AI Reader, and the broader McGraw Hill Plus ecosystem. Evergreen stands out because it changes both customer workflow and sales economics. Management said Evergreen now has a library of more than 700 titles and represented 70% of Higher Education revenue in Q3 FY2026. Simon Allen said professors are adopting the latest releases without sales rep intervention, while CFO Bob Sallmann said that frees the sales team to focus on new opportunities. That is a useful sign of product-market fit because it reduces friction on both sides of the transaction.
ALEKS remains another core asset, especially in STEM. Management launched AI-powered ALEKS for Calculus on September 15, 2025 and said it opens roughly $100M of global market opportunity. In K-12, ALEKS Adventure had 4x more monthly student users than the prior year. Those numbers do not prove monopoly power, but they do show that MH has products with enough traction to extend beyond static content into adaptive learning and intervention.
AI Reader is the clearest proof point that the company’s AI push is getting real usage. In Q3 FY2026, AI Reader reached more than 1M higher education students and generated 16M learning interactions, up from 11M in Q2. By May 2026, the FY2026 investor presentation said AI Reader had reached 57M interactions and 2.4M unique students since inception. That kind of engagement does not automatically equal monetization, but it is far better than a slide deck full of AI slogans and no usage data.
Sharpen Advantage also deserves attention. The product launched on September 30, 2025 as an AI-powered higher-ed enterprise offering. Management described it as a way to sell institution-wide solutions to administrators, professors, and students together, rather than relying only on professor-level adoption. If that model scales, it expands wallet share inside existing campuses and supports more software-like revenue density per account.
McGraw Hill’s moat is best understood as a content, workflow, and data moat rather than a pure technology moat. Management said the company is built on intellectual property, first-party data from billions of learning interactions each year, and domain expertise across the learning life cycle. That claim is supported by the operating footprint: the company serves K-12, higher education, professional, and international customers, and management has cited 19B learning interactions annually and 26M paid digital users in company materials.
That quote from CEO Philip Moyer gets to the heart of the edge. In education, generic AI is cheap to demo and hard to trust. McGraw Hill’s advantage is that it can layer AI onto vetted curriculum, assessment workflows, and institutional relationships. Morning Consult ranked the company as the top education company for effectively using AI, according to management commentary in Q3 FY2026. That is not a financial metric, but it does support the argument that MH is not arriving late to the AI party with a borrowed punch bowl.
The company also has scale advantages that smaller edtech firms struggle to match. It sells into 99% of U.S. K-12 districts, 82% of U.S. higher education institutions, and 94% of U.S. medical libraries, based on company disclosures cited in forecast materials. That installed base lowers customer acquisition friction and gives MH multiple ways to cross-sell new tools like Writing Assistant, Teacher Assistant, Clinical Reasoning, and Learning Coach.
The competitive advantage is not invincible. Pearson, Cengage, HMH, Savvas, Amplify, Elsevier, RELX, and Wolters Kluwer all have real assets. Still, the facts show MH is not defending a shrinking print shelf. It is using content depth, institutional distribution, and usage data to build sticky digital workflows. That is a better business than the market’s low multiple implies.
McGraw Hill’s operations are unusually attractive for a company still often lumped in with old-line publishers. Gross margin was 84.5% in FY2026 and 85.1% in Q4 FY2026. In Q3 FY2026, gross margin reached 85.3%, up nearly 100 basis points YoY, which management attributed to efficient operations and favorable digital mix. When a business can grow digital revenue faster than total revenue, the margin math starts doing a lot of the strategic work on its own.
The supply chain risk also looks lower than many physical-product businesses because digital delivery now dominates. FY2026 digital revenue was $1.434B, or roughly 68.2% of total revenue based on segment data, while annual print revenue was $669.1M. CFO Bob Sallmann also said tariffs had no impact on the business in Q3 FY2026. That matters because it means MH is less exposed to the usual freight-and-input drama than a traditional curriculum printer would be.
Operationally, management highlighted an offer management system launched in Q3 to simplify the sales process, compress time to close, and improve pricing visibility. It also expanded AI use cases across product development and operations. These are not flashy announcements, but they line up with the observed margin expansion. In other words, the machine is getting more efficient, not just louder.
Cash generation reinforces that point. Annual operating cash flow was $646.3M in FY2025, and quarterly operating cash flow in Q3 FY2026 was $309M, up 12% YoY. Management used that cash to prepay $596M of term loan debt year to date through Q3 FY2026, generating more than $41M in annualized cash interest savings. That is the kind of operational follow-through investors should prefer to buzzwords.
McGraw Hill operates in a large and durable education market, but the near-term opportunity is less about broad TAM theater and more about penetration inside an existing installed base. The company already reaches 99% of U.S. K-12 districts, 82% of U.S. higher education institutions, and 94% of U.S. medical libraries. That means growth can come from deeper digital adoption, AI upsell, and better monetization of existing relationships rather than pure logo hunting.
The strongest market signal is in Higher Education. Management said the company reached a record 30% market share in U.S. higher education and that Inclusive Access sales growth in prior disclosures was 37% YoY. In Q3 FY2026, Higher Education revenue rose 24% YoY, with 3% to 4% of that growth coming from enrollment according to Philip Moyer, plus more than 1% net price realization. That mix of enrollment, pricing, and share gains is a healthy formula.
K-12 is more cyclical because state adoption calendars create feast-or-famine periods. Management described FY2026 as a smaller market year but pointed to a larger FY2027 opportunity driven by California Math, Florida ELA, and Texas Math. It also said the FY2027 market opportunity was about $300M larger. That does not guarantee a surge, but it does explain why investors should not annualize the FY2026 K-12 slump as if the franchise fell off a cliff.
Across the industry, digital and recurring revenue are becoming the standard by which quality is judged. MH’s recurring revenue rose 5.8% in FY2026 to $1.541B, while digital revenue rose 5.5% to $1.434B. In a market that increasingly rewards durable software-like models, those figures matter more than whether the company is filed under one taxonomy bucket or another.
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McGraw Hill serves a broad institutional customer base: school districts, colleges and universities, medical libraries, professionals, and international distributors. The customer profile matters because it shapes both retention and sales cycles. Institutional customers buy for compliance, curriculum alignment, workflow integration, and learning outcomes. They do not churn like consumer app users who got bored over lunch.
In Higher Education, the customer relationship is increasingly campus-wide rather than title-by-title. Inclusive Access represented 60% of segment revenue in Q3 FY2026, and management said nearly two-thirds of fall 2025 growth came from new course adoptions from existing customers. It also said the company onboards about 100 new campuses annually and expects activations for accounts landed in FY2026 to increase by 15x to 20x over the next few years. That suggests a land-and-expand motion with visible monetization ramps.
In K-12, the customer is usually the district or state adoption process, which creates longer cycles but larger contract values and higher switching costs. Management said district access to McGraw Hill Plus was up 86% YoY and average time spent on the platform rose 40% since the start of the school year. Those usage metrics matter because they show the customer is not just buying content, but using the workflow layer around it.
Professional and medical customers add another layer of diversification. The company said AI Reader expanded into First Aid Forward and AccessMedicine, while Clinical Reasoning showed promising momentum in institutional pilots. That customer set is smaller than K-12 or Higher Education, but it tends to value trusted content and evidence-based tools, which plays to MH’s strengths.
McGraw Hill competes against Pearson, Cengage, Houghton Mifflin Harcourt, Savvas, Curriculum Associates, Amplify, Elsevier, RELX, Wolters Kluwer, Macmillan Learning, and AMBOSS, among others. The company itself names many of these firms in SEC disclosures. That is a serious field, and it means MH cannot rely on brand nostalgia alone.
Its strongest competitive position appears to be in U.S. Higher Education, where management reported a record 30% market share and 24% Q3 revenue growth. Evergreen, Inclusive Access, and AI Reader give MH a differentiated bundle of content, continuous updates, and digital engagement. In K-12, the company’s breadth across curriculum, intervention, and platform tools helps it compete for statewide adoptions where integrated offerings matter.
The weak point is that peers are also pushing hard into digital and AI. Pearson’s 2025 annual report highlighted digital and AI investment, and large professional-information players like RELX and Wolters Kluwer have deep data assets in their own verticals. So MH’s edge is real, but it is an execution edge, not a no-competition zone. The company has to keep shipping, keep winning adoptions, and keep proving that AI features improve outcomes rather than just decorate investor decks.
On balance, the competitive picture favors MH more than the stock’s valuation suggests. Record share in Higher Education, 82% recurring revenue in Q3 FY2026, and 84% digital revenue in that same quarter are all signs of a company moving up the quality curve. Competitors are formidable, but MH is not losing relevance. It is taking share in one of its most important profit pools.
McGraw Hill is less cyclical than many media or software names because education demand is tied to institutional budgets, enrollment, and curriculum cycles rather than discretionary consumer spending. That does not make it immune to macro pressure, but it does make revenue less fragile. In Q3 FY2026, management said it had not experienced any material impact from proposed federal education policy changes. It also said tariffs had no impact on the business.
The main macro variable is public-sector timing in K-12 and enrollment trends in Higher Education. Philip Moyer said 3% to 4% of Higher Education growth in Q3 came from enrollment, and management highlighted favorable exposure to 2-year colleges and business-management disciplines. Those are useful buffers if the broader economy softens, because community colleges often hold up better when labor markets wobble.
Geopolitical risk is more muted than for hardware or globally sourced manufacturing businesses, but International revenue softness shows that MH is still exposed to regional education-market pressure and currency-like demand variability through its overseas channels. The company sells in about 100 countries and 80 languages, yet the investment case remains mostly domestic. That is fine. It just means investors should value International as optionality, not as the core engine.
The broader capital-markets backdrop also matters. Education investors have become more selective, rewarding profitable and cash-generative digital models over growth-at-any-cost edtech. MH’s 29.2% FY2026 adjusted EBITDA margin, $614M of adjusted EBITDA, and debt paydown progress fit that preference well. In a tighter market, boring cash flow can be a feature, not a flaw.
Total debt of $3.26B versus $389.8M of cash and 2.8x net leverage leave McGraw Hill with manageable but meaningful balance-sheet risk.
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Get Full Access →FY2026 revenue of $2.103B, gross margin of 84.5%, and adjusted EBITDA of $614M show a high-margin business with improving earnings power.
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Get Full Access →Analysts are looking for FY2027 revenue of $2.164B and EPS of $1.77 after FY2026 GAAP net income of just $35M.
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Get Full Access →At 9.50x forward earnings, McGraw Hill trades below the $20.33 average analyst target despite 84.5% gross margin and 29.2% adjusted EBITDA margin.
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Get Full Access →The stock’s $19 fair value sits between the $15 Buy level and $23 Sell level, with the current setup still favoring a Buy.
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Get Full Access →McGraw Hill(MH) is a better business than its label suggests. The numbers show a company with strong gross margins, meaningful recurring revenue, real Higher Education share gains, and a growing AI-enabled product suite that is generating measurable usage. FY2026 revenue reached $2.103B, digital revenue hit $1.434B, recurring revenue reached $1.541B, and the company returned to positive GAAP net income for the full year.
The risks are real and should not be airbrushed away. Debt remains high, K-12 revenue is lumpy, and trailing profitability still carries some cleanup work from the transition period. But management is paying down debt, margins are strong, and the operating model is getting more software-like. In markets, that combination often gets noticed late rather than early.
For moderate-risk investors with a medium-term horizon, MH earns a Buy. The stock does not need perfection to work. It just needs the company to keep doing what the recent facts already show: grow digital and recurring revenue, hold share in Higher Education, execute into the next K-12 cycle, and keep shrinking the debt load. If that happens, the gap between the current valuation and our fair value estimate of $19 has room to close.
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