Why Did McGraw Hill Stock Explode Higher Today?

Core Insights - McGraw Hill's stock surged 19% after reporting earnings that significantly exceeded analyst expectations, with an adjusted profit of $1.40 per share compared to the anticipated $0.35 per share for fiscal Q2 2026 [1][6] - Despite the strong earnings report, the company experienced a 2.8% decline in revenue to $669.2 million and a 21% drop in GAAP profits to $105.3 million [3][6] - The company reported a 6.5% increase in recurring revenue and a 7.6% rise in high-margin digital revenue, contributing to a gross profit margin increase of 150 basis points to 79.2% [3][6] Financial Performance - McGraw Hill generated $168.3 million in operating cash flow in H1 2026, which is only 40% of the $412.5 million generated in H1 2025 [4] - Free cash flow (FCF) for H1 2026 was reported at $119.2 million, marking a 68% decline [4] - The company is projected to generate nearly $240 million in FCF for the year, but with a market cap of $2.2 billion and $3 billion in net debt, the enterprise value-to-free cash flow ratio is nearly 22x [5] Market Position - McGraw Hill gained notable market share during the quarter and expanded its use of AI-powered tools [3] - The overall decline in sales and profits, along with the significant drop in free cash flow, raises concerns about the attractiveness of McGraw Hill's stock as an investment [5][6]