BMO Says Houghton Mifflin Not Likely To See Catalysts Anytime Soon

BMO has downgraded Houghton Mifflin Harcourt Co HMHC to Market Perform from Outperform following its disappointing second-quarter results and reduced 2016 guidance for billings and net sales.

"While we acknowledge this downgrade is (at least) a day late, we see no near-term catalyst to get this stock moving in the right direction, given the expected disappointing results for the year," analyst Jeffrey Silber wrote in a note.

For 2016, net sales are now expected to be between $1.485 billion and $1.555 billion and billings projected between $1.525 billion and $1.595 billion.

The company attributed the guidance cut to a reduction in the expected 2016 new adoption market opportunity and lower-than-expected growth in the first full year of ownership of the acquired EdTech business. The company specifically cited California's Language Arts adoption, which it now believes will be spread over three years as opposed to two years previously.

Related Link: Houghton Mifflin Upgraded By Goldman Sachs On Attractive Cash Flow

However, it still believes its share of the new adoption market will be in excess of 40 percent this year, which compares with 43 percent in 2015 and 52 percent in 2014.

The company plans an investor day in December when it hopes to provide more guidance as to how to monitor its progress.

"While there could be some positive announcements there, we believe most investors will wait for progress updates for 2017, something not likely to occur for some time," Silber noted.

The analyst cut the target price to $17 from $22 and now expects 2016 loss at $1.38 a share versus prior estimated loss of $1.16 a share.

At time of writing, shares of Houghton Mifflin were seen up 1.53 percent to $15.31 on the day.

Full ratings data available on Benzinga Pro.