Thematic evaluation
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S&P Global, Inc. (SPGI)

October 07, 2024

Compared to: MSCI, Inc. (MSCI) | Nasdaq, Inc. (NDAQ) | Consumer Discretionary Select Sector SPDR Fund (XLY)

Our reasoning

S&P Global's current valuation appears fair, balancing its strong financial performance and market leadership against potential risks and challenges. While the company's robust revenue growth, expanding margins, and strong cash flow generation suggest potential undervaluation, these factors seem to be adequately reflected in the current stock price, which is in line with industry peers based on key valuation multiples.

Key takeaways
  • S&P Global is a financially strong company with a diversified business model, strong revenue growth, and improving profitability.
  • The company's strategic initiatives, including acquisitions and divestitures, are driving growth and shaping its financial profile.
  • SPGI's strong free cash flow generation provides financial flexibility for future investments or economic downturns.
  • The company's increasing debt levels and decreasing equity could indicate a shift towards debt financing, potentially to fund acquisitions or other strategic initiatives.
  • The company is navigating a complex regulatory environment, with evolving rules and requirements that impact its operations and compliance obligations across multiple jurisdictions.
  • Cybersecurity and data protection remain key operational risks, with the potential for system disruptions and unauthorized access to sensitive information.
  • Competitive pressures, market volatility, and the ability to attract/retain talent are ongoing challenges that could impact the company's financial performance and growth prospects.
  • SPGI's valuation is supported by its strong financial performance, growth prospects, and market leadership position.
  • The company's stock price has consistently outperformed the benchmark and has shown a mixed performance compared to its peers.
  • SPGI's future outlook is positive, with management expecting continued revenue growth and profitability.
Fairly valued
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Evaluation summary

  1. Company Overview:

    • S&P Global, Inc. (SPGI) is a leading provider of credit ratings, benchmarks, analytics, and workflow solutions for the global capital, commodity, and automotive markets.
    • The company operates through five reportable segments: Market Intelligence, Ratings, Commodity Insights, Mobility, and Indices.
    • SPGI's key products and services include credit ratings, financial data and analytics, commodity price assessments, automotive industry solutions, and index/benchmark administration.
    • The company's target market includes asset managers, investment banks, commercial banks, insurance companies, exchanges, trading firms, issuers, commodity producers/traders, and automotive manufacturers/suppliers.
    • SPGI's primary competitors include Moody's, MSCI, FactSet, Verisk Analytics, and Intercontinental Exchange.
    • For comparative analysis, we will be using the Consumer Discretionary Select Sector SPDR Fund (XLY) as a benchmark and Nasdaq, Inc. (NDAQ) and MSCI, Inc. (MSCI) as industry peers.

  2. Financial Performance:

    • SPGI has demonstrated strong revenue growth, with a 16% year-over-year increase in the second quarter of 2024, excluding the divestiture of engineering solutions.
    • The company's Ratings division has been a key driver of growth, with transaction revenue increasing over 60% year-over-year.
    • SPGI's profitability has also improved, with adjusted diluted earnings per share (EPS) growing 30% in the second quarter, the highest quarterly adjusted EPS in the company's history.
    • The company has achieved significant margin expansion, with adjusted operating margin expanding by 60 basis points to 32.9% in the second quarter.
    • SPGI's return on average assets (ROA), return on average total equity (ROE), and return on average invested capital (ROIC) are all above the industry average, indicating efficient asset utilization and strong profitability.
    • Compared to its peers, SPGI has consistently outperformed MSCI in terms of annualized returns but has underperformed NDAQ in several periods, particularly in the short term.

  3. Operational Efficiency:

    • SPGI's balance sheet analysis reveals a strong cash position and increasing current assets, indicating a healthy short-term liquidity position.
    • The company's working capital management has been effective, with a consistent positive working capital balance.
    • SPGI's cash flow is strong and growing, driven by strong operating cash flow and a healthy free cash flow margin.
    • The company's free cash flow generation provides financial flexibility for future investments or economic downturns.
    • SPGI's asset quality is generally good, with a decreasing trend in intangible assets and total assets, potentially indicating a focus on asset optimization and efficiency.
    • The company's capital expenditure analysis reveals a consistent investment in its business, with a focus on strategic initiatives and acquisitions.
    • SPGI's dividend and share repurchase program is sustainable, supported by strong cash flow generation and a healthy balance sheet.
    • Compared to its peers, SPGI has a higher debt-to-equity ratio than NDAQ, indicating a higher level of financial leverage.
    • However, SPGI's debt / EBITDA ratio is below the industry average, suggesting a lower level of debt relative to its earnings.

  4. Growth Opportunities:

    • SPGI is pursuing growth opportunities through market expansion, strategic acquisitions, and product innovation.
    • The company has identified significant growth potential in private market solutions, sustainability and energy transition offerings, and automotive industry solutions.
    • SPGI's recent acquisitions, such as Visible Alpha and World Hydrogen Leaders, demonstrate its commitment to expanding its product portfolio and market reach.
    • The company is also investing in R&D to develop new products and services, including generative AI-powered solutions.
    • SPGI's strategic focus areas include expanding its presence in emerging markets, leveraging data analytics and technology, and developing innovative solutions for its customers.
    • The company's management has a strong track record of executing strategic plans and delivering on its commitments.

  5. Risks and Threats:

    • SPGI faces several risks and threats, including cybersecurity and data protection risks, increasing competition, regulatory changes, reliance on third-party providers, and the ability to attract and retain key talent.
    • The company is also exposed to legal and regulatory proceedings, investigations, and changes in the regulatory environment.
    • SPGI's business is sensitive to macroeconomic conditions, including interest rates, M&A activity, and overall economic growth.
    • The company's competitive landscape is evolving, with new entrants and existing competitors vying for market share.
    • SPGI's operations are subject to a complex regulatory environment, with evolving rules and requirements that impact its compliance obligations across multiple jurisdictions.

  6. Valuation Analysis:

    • SPGI's valuation metrics, such as P/E, EV/EBITDA, and price-to-sales, are generally in line with its peers.
    • The company's valuation is supported by its strong financial performance, growth prospects, and market leadership position.
    • Potential catalysts for SPGI's valuation include continued revenue growth, margin expansion, and strategic acquisitions.

  7. Price Performance:

    • SPGI's stock price has consistently outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over all the analyzed periods, with the exception of the 1-month period.
    • SPGI has exhibited lower annualized volatility than XLY, indicating a lower risk profile.
    • Compared to its peers, SPGI has shown a mixed performance, outperforming MSCI in most periods but underperforming NDAQ in several periods.

  8. Future Outlook:

    • SPGI's management has raised its full-year guidance, reflecting confidence in its ability to capitalize on market demand and maintain expense discipline.
    • The company expects continued growth in its Ratings, Market Intelligence, and Indices segments.
    • Analyst estimates for SPGI's future performance are generally positive, with a consensus expectation for continued revenue growth and profitability.

  9. Summary:

    • SPGI is a financially healthy company with strong revenue growth, improving profitability, and a healthy cash flow position.
    • The company's recent strategic initiatives, including acquisitions and divestitures, are driving growth and shaping its financial profile.
    • SPGI's strong free cash flow generation provides financial flexibility for future investments or economic downturns.
    • The company is navigating a complex regulatory environment, with evolving rules and requirements that impact its operations and compliance obligations across multiple jurisdictions.
    • Cybersecurity and data protection remain key operational risks, with the potential for system disruptions and unauthorized access to sensitive information.
    • Competitive pressures, market volatility, and the ability to attract/retain talent are ongoing challenges that could impact the company's financial performance and growth prospects.
    • SPGI's valuation is supported by its strong financial performance, growth prospects, and market leadership position.
    • The company's stock price has consistently outperformed the benchmark and has shown a mixed performance compared to its peers.
    • SPGI's future outlook is positive, with management expecting continued revenue growth and profitability.
    • Key factors to monitor include the company's ability to execute its strategic initiatives, navigate the regulatory environment, and maintain its competitive advantage.
Peer fundamentals 
Fundamentals
Insights
  • S&P Global Inc. is a financially healthy company with strong revenue growth, improving profitability, and a healthy cash flow position.
  • The company's recent strategic initiatives, including acquisitions and divestitures, are driving growth and shaping its financial profile.
  • The company's strong FCF generation provides financial flexibility for future investments or economic downturns.
  • The company's increasing debt levels and decreasing equity could indicate a shift towards debt financing, potentially to fund acquisitions or other strategic initiatives.
  • The company is navigating a complex regulatory environment, with evolving rules and requirements that impact its operations and compliance obligations across multiple jurisdictions.
  • Cybersecurity and data protection remain key operational risks, with the potential for system disruptions and unauthorized access to sensitive information.
  • Competitive pressures, market volatility, and the ability to attract/retain talent are ongoing challenges that could impact the company's financial performance and growth prospects.
Analysis
  • Revenue - Revenue is increasing at a strong rate, driven by strong performance across most segments, particularly Ratings, Market Intelligence, and Indices. - The company's revenue growth is sustainable and driven by strong demand for its products and services across multiple segments. - The company's revenue growth is expected to continue, driven by strong demand for its products and services across multiple segments.
    • Profitability
      • The company's profitability is improving, driven by strong revenue growth and effective expense management.
      • The company's gross profit margin, operating margin, and net margin are all increasing, indicating improved profitability.
      • The company's return on average assets, return on average total equity, return on average total capital, and return on average invested capital are all above the industry average, indicating efficient asset utilization and strong profitability.
      • The company's profitability is likely to continue to improve, driven by strong revenue growth and effective expense management.
    • Liquidity
      • The company's current ratio is below the industry average, suggesting a slightly lower level of short-term liquidity. However, the company's strong cash position and increasing current assets indicate a healthy short-term liquidity position.
      • The company's strong cash flow generation and increasing current assets suggest a healthy short-term liquidity position.
    • Solvency
      • The company's total debt to total equity ratio is below the industry average, indicating a lower level of financial leverage.
      • The company's debt / EBITDA ratio is below the industry average, suggesting a lower level of debt relative to its earnings.
      • The company's strong cash flow generation and manageable leverage suggest a solid long-term solvency position.
    • Operational Efficiency
      • The company is effectively controlling operating expenses, particularly selling, general, and administrative expenses.
      • The company's return on average assets, return on average total equity, return on average total capital, and return on average invested capital are all above the industry average, indicating efficient asset utilization and strong profitability.
      • The company's decreasing intangible assets and total assets could indicate a focus on asset optimization and efficiency.
    • Cash Flow Analysis
      • The company's cash flow is strong and growing, driven by strong operating cash flow and a healthy free cash flow margin.
      • The company's strong FCF generation provides financial flexibility for future investments or economic downturns.
      • The company's strong FCF generation is expected to continue, providing the company with the ability to repay debt, increase dividends, and invest in organic growth opportunities.
    • Risk Factors
      • The company's increasing debt levels and decreasing equity could indicate a shift towards debt financing, potentially to fund acquisitions or other strategic initiatives.
      • The company's increasing debt levels and decreasing equity could indicate a shift in capital structure and financing strategy. However, the company's strong cash flow generation and manageable leverage suggest a solid long-term solvency position.
      • The company is navigating a complex regulatory environment, with evolving rules and requirements that impact its operations and compliance obligations across multiple jurisdictions.
      • Cybersecurity and data protection remain key operational risks, with the potential for system disruptions and unauthorized access to sensitive information.
      • Competitive pressures, market volatility, and the ability to attract/retain talent are ongoing challenges that could impact the company's financial performance and growth prospects.
    • Future Outlook
      • The company's financial performance is expected to continue to improve, driven by strong revenue growth, effective expense management, and a healthy cash flow position.
      • The company's strategic initiatives, including acquisitions and divestitures, are likely to continue to drive growth and shape its financial profile.
      • The company's strong FCF generation is expected to continue, providing the company with the ability to repay debt, increase dividends, and invest in organic growth opportunities.
      • Key financial metrics to monitor in upcoming quarters include revenue growth, gross profit margin, operating margin, net operating cash flow, free cash flow, and capital expenditures.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-10-04)
Consumer Discretionary Select Sector SPDR Fund (XLY)
  • Performance Comparison:
    • SPGI has consistently outperformed XLY over all the analyzed periods, with the exception of the 1-month period. This suggests that SPGI has been a more profitable investment than XLY.
    • SPGI's outperformance has been particularly strong in the longer-term periods, such as the 2-year and 3-year periods. This indicates that SPGI's business model and growth prospects are likely more robust than XLY's.
  • Risk and Return Analysis:
    • SPGI has provided higher annualized returns than XLY over all the analyzed periods. This suggests that SPGI has been a more profitable investment than XLY.
    • SPGI has exhibited lower annualized volatility than XLY, indicating that SPGI is less risky than XLY. This is further supported by SPGI's lower beta value, which suggests that SPGI is less sensitive to market movements.
    • SPGI's maximum drawdown of 39.76% is slightly higher than XLY's maximum drawdown of 39.67%. However, the frequency and duration of drawdowns have been similar for both instruments. This suggests that while SPGI has experienced a slightly larger drawdown, its overall risk profile is still lower than XLY's.
  • Risk-Adjusted Performance:
    • SPGI has consistently shown a higher Sharpe ratio than XLY, indicating that SPGI has been offering better risk-adjusted returns. This suggests that SPGI has been able to generate higher returns for a given level of risk.
    • SPGI's beta value of less than 1 indicates that it is less sensitive to market movements than XLY, which has a beta value consistently above 1. This suggests that SPGI is less risky than XLY.
  • Overall Assessment:
    • SPGI has consistently outperformed XLY in terms of both absolute and risk-adjusted returns. This suggests that SPGI is a more attractive investment than XLY.
    • SPGI's lower volatility and beta value indicate a lower risk profile compared to XLY. This makes SPGI a more suitable investment for investors seeking lower risk.
    • SPGI's strong performance and lower risk profile suggest that it is a well-managed company with a robust business model and growth prospects.
    • The recent trends in SPGI's performance, volatility, and risk-adjusted returns are positive, suggesting that SPGI is likely to continue to outperform XLY in the future.
Peers Price History(as of 2024-10-04)
MSCI, Inc. (MSCI)Nasdaq, Inc. (NDAQ)
  • Performance Comparison: SPGI has shown a mixed performance compared to its peers. While it outperformed MSCI in most periods, it underperformed NDAQ in several periods, particularly in the short term. This suggests that SPGI may be more volatile than NDAQ but offers better long-term growth potential compared to MSCI.
  • Risk and Return Analysis: SPGI has provided higher annualized returns than NDAQ and MSCI in most periods, indicating strong growth potential. However, it has also exhibited higher volatility than NDAQ, suggesting a higher risk profile. MSCI has consistently shown the lowest annualized returns and the highest volatility, indicating a higher risk and lower reward profile.
  • Risk-Adjusted Performance: NDAQ has consistently offered the best risk-adjusted returns, as evidenced by its higher Sharpe ratio. SPGI has shown a moderate Sharpe ratio, indicating a balance between risk and return. MSCI has consistently had a lower Sharpe ratio, suggesting less favorable risk-adjusted returns.
  • Overall Assessment: SPGI has demonstrated strong growth potential, as evidenced by its higher annualized returns. However, it also carries a higher risk profile compared to NDAQ, as indicated by its higher volatility and lower Sharpe ratio. MSCI has consistently shown lower returns and higher volatility, making it a less attractive investment option. Investors seeking higher returns with a moderate risk profile may consider SPGI, while those seeking lower risk and consistent returns may prefer NDAQ. It is important to note that these are just observations based on the provided data and do not constitute investment advice.
Peers Fundamentals(as of 2024-06-30)
MSCI, Inc. (MSCI)Nasdaq, Inc. (NDAQ)

  1. Market Position and Size:

    • SPGI holds a dominant market position within its peer group, with a market capitalization significantly larger than its peers, Nasdaq, Inc. (NDAQ) and MSCI, Inc. (MSCI).
    • SPGI's market cap is approximately 3.88 times larger than NDAQ and 3.62 times larger than MSCI.
    • SPGI's larger market cap is justified by its superior financial performance, including revenue, EBITDA, and net income.

  2. Profitability and Efficiency:

    • SPGI exhibits strong profitability, exceeding both peer and industry averages in Gross Profit Margin, EBITDA Margin, and Net Profit Margin.
    • SPGI's profitability is significantly higher than its peers, despite its larger scale, suggesting a highly efficient and scalable business model.
    • SPGI's efficiency in generating returns is generally above average compared to its peers and the industry, but it lags behind MSCI in several key metrics.

  3. Financial Health and Stability:

    • SPGI demonstrates strong liquidity and solvency, with lower debt levels and higher cash flow generation capacity than its peers and the industry average.
    • SPGI's balance sheet structure is generally in line with its peers, considering its larger size, with a higher level of equity and lower debt levels.

  4. Valuation and Market Perception:

    • SPGI's valuation metrics are generally in line with its peers and the industry average, with some variations.
    • The market appears to value SPGI's earnings and EBITDA at a premium compared to its peers, but at a discount compared to the industry average.
    • This suggests that the market may be recognizing SPGI's strong profitability and growth potential, but also acknowledging its larger size and potentially slower growth trajectory compared to smaller, more nimble competitors.

  5. Cash Flow and Capital Management:

    • SPGI generates significantly more cash from its operations and free cash flow than its peers, despite its larger size, indicating a strong ability to generate cash and effectively manage capital allocation.

  6. Growth and Future Prospects:

    • SPGI consistently shows higher growth in sales/revenue, EBITDA, net income, basic earnings per share, and free cash flow compared to the peer group average.
    • SPGI's growth has been accelerating over the past 5 years, indicating a positive long-term trend.
    • SPGI's growth is balanced across different metrics, with strong performance in revenue, profitability, and cash flow generation.

  7. Potential for Investment:

    • SPGI presents an attractive investment opportunity, considering its strong financial performance, robust cash flow generation, and dominant market position.
    • Its consistent outperformance in key financial metrics suggests a strong ability to generate sustainable value for shareholders.
    • However, investors should be aware of SPGI's potentially slower growth trajectory compared to smaller, more nimble competitors and its lower return on equity compared to the industry average.

  8. Key Risks and Considerations:

    • SPGI's growth may be subject to cyclical factors or changes in market conditions, as evidenced by significant fluctuations in year-over-year growth rates.
    • SPGI's lower return on equity compared to the industry average suggests that it may be less efficient in generating returns for its shareholders than its peers.
    • SPGI's valuation metrics are generally in line with its peers and the industry average, but it trades at a discount to the industry average in terms of Price to Earnings and Price to Book Ratio, suggesting that the market may be recognizing SPGI's larger size and potentially slower growth trajectory compared to smaller, more nimble competitors.

  9. Overall Assessment:

    • SPGI exhibits strong overall financial health and performance relative to its peer group and industry averages.
    • Its robust profitability, strong cash flow generation, and conservative debt strategy indicate a stable financial foundation and a strong ability to manage its financial obligations.
    • SPGI holds a dominant competitive position within its peer group and the broader industry, with a strong brand reputation, a wide customer base, and a robust business model.
    • While SPGI may face competition from smaller, more nimble competitors, its strong financial position and established market presence provide a significant advantage.