UPDATE: Stifel Nicolaus Initiates Houghton Mifflin Harcourt, Publishing Recovery Outlook Positive

In a report published Tuesday, Stifel Nicolaus analyst David Pang initiated coverage on Houghton Mifflin Harcourt Co. HMHC With a Buy rating on the shares and a $21.00 price target.

According to the report, “As a leading provider of U.S.-based preK-12 educational solutions, we see Houghton Mifflin Harcourt as the best way to play the anticipated recovery in el-hi publishing. We believe HMHC is in the early stages of a turnaround, and our estimates assume further
acceleration of growth, higher cash flows, and profitability following several years of significant losses. At 9.2x and 11.7x our CY14 adj. EBITDA and FCF estimates, respectively, we view valuation as reasonable at these levels.”

Some key points from the report included:

- Coverage initiation follows the company’s IPO in mid-November.
- "We believe HMHC is in the early stages of a turnaround.”
- "After emerging from bankruptcy less than two years ago, the company’s balance sheet is vastly improved, while cash flow characteristics should continue to get better, driving higher net cash balances, which yields greater operational flexibility and opportunities to enhance shareholder value (longer term), in our opinion.”

HMHC closed Monday at $17.77.