UPDATE: Morgan Stanley Initiates Houghton Mifflin Harcourt, Higher Spending Expected

In a report published Tuesday, Morgan Stanley analyst Suzanne Stein initiated coverage on Houghton Mifflin Harcourt Co. HMHC at Overweight with a $20.00 price target.

According to the report, “HMH is a leader in the digital evolution of K-12 content and is poised to benefit from a recovery in spending. HMH has a strong balance sheet and growing free cash flow. We see the risk/reward as attractive.”

Some key positives from the report include:

- ”We see HMH as a major beneficiary of higher K-12 spend and based on estimates for the next few adoption cycles, our revenue forecast could be conservative.”
- ”The digital transition is an opportunity (and a threat); HMH’s content is digital ready.”

Some key risks from the report include:

- HMH’s sensitivity towards macro and political changes.
- Competition increasing.
- Secular changes (digital transition) create uncertainty.
- Post-bankruptcy stock ownership could be an overhang.

Tuesday morning shares of HMHC are trading up to 1 percent.

HMHC closed Monday at $17.77.

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Posted In: Analyst ColorInitiationAnalyst RatingsStifel NicolausSuzanne Stein
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