Company Reports

S&P Global is off to a solid start in 2024. Better bond issuance and higher markets caused the firm to tweak its revenue outlook for its ratings and indexes segments upward, while the company's subscription business is expected to hold steady. Driven by slightly higher revenue and operating margins compared with its previous expectation, S&P Global raised its full-year adjusted EPS outlook by 1% at the midpoint. Overall, there was little in the first-quarter earnings release that would alter our long-term view of the firm. We will maintain our wide moat rating and $410 per share fair value estimate. We regard the shares as roughly fairly valued right now.

After updating our model, we are raising our fair value estimate on S&P Global to $410 from $395. Relative to our previous model, we are increasing our 2024 revenue estimate by about 1% as we forecast ratings revenue to grow by 9% in 2024 driven by bond issuance recovering and pricing.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P's revenue, limiting upside and downside scenarios for the firm.

S&P Global finished 2023 with solid revenue but modestly elevated expenses. Revenue grew 7% to $3.15 billion, a touch above the FactSet consensus estimate of $3.13 billion. Adjusted operating margin of 44.1% in the quarter was down from 47.0% in the third quarter and missed our estimate of 46.9%. Interestingly, the margin miss relative to our model in the quarter was broad-based with margins in each segment coming in lower than our forecast. As a result of lower margins, adjusted EPS of $3.13 missed the consensus estimate of $3.15 even as the firm’s tax rate declined 120 basis points from the year-ago period. The firm’s 2024 revenue outlook was in line with our expectations, but margins and EPS were light. With shares trading at a healthy valuation prior to the company reporting, the stock is taking a breather given these results and outlook. Overall, we will maintain our wide moat rating and $395 fair value estimate on S&P Global’s shares.

S&P Ratings typically updates its regulatory pricing disclosures in January, and our perusal of its disclosures shows continued healthy pricing power that we believe reflects the ratings segment's network effect and resulting Morningstar wide moat rating. S&P raised its list price 2.6% year over year on corporate bond ratings to 7.90 basis points from 7.70 basis points last year. While this year’s increase was smaller than the 3.4% increase seen in 2023, we note that it is consistent with the 2.6% per year increase since 2019, when the rack rate was 6.95 basis points. In addition, S&P Global also increased the minimum fee on most corporate transactions to $140,000 versus $125,000 in 2023.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P's revenue, limiting upside and downside scenarios for the firm.

In our view, S&P Global generally reported a healthy third quarter. Revenue of $3.09 billion and adjusted EPS of $3.21 beat the FactSet consensus estimate by 2% and 6%, respectively. The ratings business is rebounding, and the firm’s subscription businesses are proving resilient and in some cases are accelerating. With one quarter left to 2023, S&P narrowed its firmwide revenue outlook but kept its midpoint unchanged. We will maintain our wide moat rating and as we tweak our revenue estimates higher, we are increasing our fair value estimate to $385 from $375 on S&P Global’s shares.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.

While S&P Global’s second-quarter results were mostly in line with consensus, some slight softness in the nonratings businesses appears to be weighing on the stock. Revenue of $3.10 billion was 1% above the FactSet consensus, while adjusted EPS of $3.12 matched the consensus estimate. We view the July 27 pullback as a reflection that shares had appreciated 28% year to date before the earnings release and that investors were hoping for something better than unchanged firmwide revenue and adjusted EPS guidance. We will maintain our wide moat rating and are increasing our fair value estimate to $375 per share from $370 primarily due to the time value of money.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.

Earlier this week, the European Commission issued a proposal for the regulation of environmental, social, and governance ratings providers that provide ESG opinions or ESG scores. We believe increased regulation will result in higher costs for ESG ratings providers but will also benefit large incumbent providers with more resources. By far, the company within our coverage universe with the largest exposure to ESG revenue is MSCI. ESG and climate revenue (including both data subscriptions and index) make up about 19% of the firm’s revenue and we estimate about 15% of the firm’s adjusted EBITDA. We keep our respective fair value estimates of $412, $370, and $315 on wide moat-rated MSCI, S&P Global, and Moody’s.

S&P Global is off to a solid start to the year. Revenue of $3.16 billion and adjusted EPS of $3.15 in the quarter edged out the FactSet consensus estimate of $3.07 billion and $2.92, respectively. Though S&P Global maintained its firmwide revenue outlook of 4%-6% adjusted growth and adjusted EPS range of $12.35-$12.55, it did tweak some of its segment revenue outlooks higher. Overall, there was little that would change our long-term view of the firm and we will maintain our wide moat rating and $370 fair value estimate on S&P Global’s shares.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.

S&P Global reported a 6% decline in adjusted fourth-quarter revenue with ratings revenue declining 29% as bond issuance dried up. S&P Global’s nonratings business grew 4%. Overall, there was little in the firm’s fourth-quarter earnings release that would alter our long-term view of the firm, and we will maintain our fair value estimate of $370. S&P Global has a variety of moaty businesses, and we expect the firm to have meaningful pricing power across its businesses. However, S&P Global’s wide moat is not a secret to the market and as such we regard shares as being fairly valued.

Ahead of its investor day, S&P Global announced on Nov. 30 that it intends to sell its engineering solutions business. This segment represented about 3% of the firm’s revenue and with lower margins than S&P Global overall, so the segment ended up understandably being an afterthought for investors. S&P Global’s engineering solutions segment is the result of its recent merger with IHS Markit and is known for its Engineering Workbench product, which is a database of standards of technical information. We believe this segment had little overlap with the rest of S&P Global’s business and thus believe selling it makes strategic sense. We will maintain our wide moat rating and $370 fair value estimate on S&P Global’s shares.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.

Wide moat-rated S&P Global reported a decent third quarter. Revenue missed consensus expectations by 2%, which we attribute to ratings weakness while adjusted EPS beat by 5% amid healthy operating margins. S&P Global saw pro forma revenue decline 8% in the third quarter, driven by a 33% decline in ratings revenue. Non-ratings business grew 4% in the quarter. The ratings revenue decline was mostly expected given Moody's recent results and weak bond issuance. As we lower our near- and medium-term ratings revenue assumptions, we are lowering our fair value estimate on S&P Global to $370 from $380.

S&P Global reported a pro-forma revenue decline of 5% amid a 26% decline in ratings revenue in the second quarter as the acquired IHS Markit businesses helped offset the rating revenue volatility. The ratings revenue decline was mostly expected given the weak bond issuance market and the firm's 2022 segment outlook of a low-to-mid 20s decline in ratings revenue is roughly in line with Moody's low 20s percent decline expectation provided last week. As we modestly lower our revenue and operating margin forecasts, we are reducing our fair value estimate on wide-moat-rated S&P Global to $380 from $395.

Whether through credit ratings, financial indexes, or commodity price reporting, S&P Global has established a wide moat from its data-driven benchmarks. Given the embedded nature of these benchmarks, S&P enjoys a strong competitive position and strong operating margins. In February 2022, S&P completed its $44 billion acquisition of IHS Markit. We believe IHS Markit's recurring revenue model will further diversify S&P revenue, limiting both the upside and downside scenarios for the firm.