Trouble for McGraw-Hill (MHP) And Moody's (MCO)

Moody’s (MCO) is already in a ton of trouble due to is rating on sub-prime debt and mortgage-backed securities. According to the FT, the European Union is opening an investigation because it “believes the ratings agencies failed to act quickly enough to warn investors.” The US Congress is also going to begin an investigation.

Moody’s shares are already down for the count. They trade at $49, around their 52-week low and down from the high of $76.09 set in February. It is not hard to imagine that lawsuits and further investigations could take them lower.

That leaves McGraw-Hill (MHP) which owns Standard & Poor’s. Unlike Moody’s, the company has a number of other very large units including BusinessWeek and an education unit. In the last quarter, revenue at MHP was up 13% to $1.7 billion and net income rose 25% to $277 million.While the company’s rating services are its fastest growing sector, MHP is hardly a ratings company pure play.

McGraw-Hill shares trade at a 52-week low, around $50 and down from their high of $72.50.

That might be an over-reaction.

Douglas A. McIntyre