Company Reports

Wide-moat MSCI reported a second quarter that helped allay the fears of slow net sales that the firm saw in the first quarter. While MSCI reported revenue and adjusted EPS that topped the FactSet consensus estimates by 2% and 3%, respectively, we attribute the stock's outsize move upward to improving subscription sales and improving retention rates. Firm-wide net new recurring subscription sales was $55 million, up from $48 million in the year-ago period and up from $19 million in the first quarter. The firm's retention rate of 94.8% was down from 95.5% in the year-ago period but up from 92.8% in the first quarter. Despite the strong quarter, MSCI is still seeing elongated sales cycles and expects cancellations to be higher in the third quarter versus the year-ago period, which to us indicates that net new subscription sales activity can be lumpy. As we update our model, we are increasing our fair value estimate by 8% to $495, primarily due to net subscription sales beating our expectations, market appreciation boosting asset-based fees, and time value of money.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-US indexes, MSCI boasts about $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

MSCI reported an operating miss in the first quarter. While adjusted earnings per share of $3.52 beat the FactSet consensus estimate of $3.45, this was due to an unusually low tax rate. Revenue and adjusted EBITDA missed consensus estimates by 1% and 2%, respectively. The big disappointment was net new recurring sales, which were weak across multiple segments. This weakness was not just attributable to the merger between UBS and Credit Suisse. We will maintain our wide moat rating, but we are reducing our fair value estimate to $460 per share from $480 as we slow our near-term sales growth projections, partially offset by higher asset-based fees from market appreciation. We regard the stock as roughly fair valued following its decline after the earnings report.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-US indexes, MSCI boasts about $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts about $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

MSCI ended 2023 on a high note with strong fourth-quarter results. Revenue of $690 million easily beat our estimate of $662 million and the FactSet consensus estimate of $663 million. While the bulk of the beat was from nonrecurring index subscription sales and asset-based fees, the firm’s recurring businesses held up well. Adjusted EBITDA expenses were largely in line with our expectations, and given the revenue beat, adjusted EBITDA surpassed our estimate and the FactSet consensus estimate by 7%. After tweaking our model, we are increasing our fair value estimate to $470 per share from $440, primarily to include higher asset-based revenue and modestly higher expectations for the analytics and index subscription businesses. While we acknowledge that MSCI has a wide-moat index franchise with many positive characteristics, we regard the shares as pricey at current levels.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

MSCI reported a decent third quarter in our view. Revenue of $626 million finished in line with the FactSet consensus estimate while expense control and a low tax rate resulted in adjusted EPS of $3.45 edging out the consensus estimate by 4%. However, sales activity which can be a bit lumpy finished a bit below our expectations and we believe this factor explains the modest negative investor reaction to MSCI’s shares. Overall, we will maintain our wide moat rating and fair value estimate of $440 on MSCI’s shares.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

MSCI announced today that it will acquire the remaining 66% of The Burgiss Group that it does not currently own for a cash consideration of $697 million. Given MSCI already had a stake in the firm, the decision to buy the firm outright is not a big surprise. The growth of private markets has been a big theme across the industry, and MSCI’s decision to acquire Burgiss is a bet that the need for private markets data and analytics will continue to grow. Overall, we will maintain our wide moat rating and fair value estimate of $440 on MSCI’s shares.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

Wide-moat MSCI had a relatively strong second quarter. Revenue grew 13% to $621 million, which beat FactSet consensus of $602 million and our estimate of $614 million. MSCI benefited from rising equity markets, boosting asset-based fees. In addition, nonrecurring index subscription revenue was surprisingly strong. As we update our model, we are raising our fair value estimate for MSCI to $430 from $412 to account for market appreciation having a positive effect on asset-based fees and modestly higher subscription revenue across the firm's other segments. While there are many positive attributes to MSCI's business model, we believe these attributes are well understood by the market and regard shares as pricey.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

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.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of overall revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

Wide-moat-rated MSCI started 2023 with a decent quarter. Revenue, adjusted EBITDA, and adjusted EPS were $592 million, $345 million, and $3.14 which compares with the FactSet consensus estimates of $594 million, $342 million, and $3.01 respectively. MSCI’s largest and most profitable segment is its index segment with trends generally holding up. However, MSCI’s net subscription sales are seeing deceleration in its other segments, particularly for ESG and climate subscriptions. Overall, we are maintaining our fair value estimate of $412. However, given MSCI’s exposure to asset-based fees and a wide variation of outcomes in its ESG business, we are adjusting the Morningstar Uncertainty Rating to High from Medium.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of the firm’s revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

MSCI finished 2022 on a high note. Fourth-quarter revenue grew 7% organically to $576 million, edging out the FactSet consensus of $569 million. MSCI was disciplined on expenses, which led to adjusted EBITDA of $339 million and adjusted EPS of $2.84, beating the consensus estimates of $335 million and $2.76, respectively. If there was one quibble in the quarter, it was that MSCI’s retention was a bit soft, but we view this as more of a blip and note that gross sales were strong. As we update our model, we are increasing our fair value estimate to $412 per share from $370 primarily to reflect the effect of the market rebound in the fourth quarter and January 2023 on the firm’s asset-based fees.

Since going public in 2007, MSCI has become a leader in providing data and software to asset managers and asset owners. Its crown jewel is the index segment, which makes up about 60% of the firm’s revenue and 80% of operating profit. Through early leadership in non-U.S. indexes, MSCI boasts over $15 trillion in benchmarked assets. Because index data is critical to stakeholders that benchmark to MSCI, its index subscriptions have strong retention and pricing power.

Wide-moat-rated MSCI reported a healthy third quarter despite a weak stock market negatively impacting asset-based fees. Revenue grew 7% organically to $561 million, a touch above the FactSet consensus of $559 million. Expense control was strong, and MSCI’s expenses benefited from a stronger U.S. dollar that led to adjusted EBITDA of $341 million and adjusted EPS of $2.85 beating the FactSet consensus of $325 million and $2.71, respectively. Overall, there was little in the third-quarter release that would alter our long-term view of the firm, and we will maintain our fair value estimate of $370 on MSCI’s shares. We regard MSCI’s shares as modestly overvalued.