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On Tuesday, Evercore ISI initiated coverage on S&P Global (NYSE:SPGI) with an Outperform rating and established a price target of $599.00. The firm highlighted S&P Global's diverse portfolio, which includes a leading position in the Ratings sector and strong network effects in Commodity Insights. Additionally, the firm benefits from the ongoing shift from active to passive index investing.
The valuation of S&P Global by Evercore ISI is based on an anticipated normalized earnings power, assuming corporate debt issuance returns to a mid-single-digit percentage growth per year. Historically, S&P Global's stock has traded at a premium of approximately 50% over the S&P 500, excluding the major seven tech giants, but currently enjoys a higher premium of around 70%.
Evercore ISI predicts a potential decrease in the price-to-earnings (P/E) multiple as normalized earnings increase around the year 2027. However, the firm expects that S&P Global will maintain a P/E premium above the historical average, driven by stronger revenue and earnings growth in the Ratings division and the potential for artificial intelligence growth.
The investment firm applied a 60% premium to the current next twelve months (NTM) P/E of the S&P 500 excluding the major seven tech stocks, which stands at 19 times. This results in a 30 times P/E for their valuation of S&P Global, marginally lower than the 32 times P/E currently applied to Moody's Corporation (NYSE:MCO). By applying this multiple to their projected earnings per share (EPS) for 2027 and discounting it back to year-end 2025, Evercore ISI arrived at the $599 price target.
In other recent news, S&P Global has been gaining attention for its robust financial performance, with an impressive 16% increase in total revenue. This surge was primarily driven by a 60% increase in transaction revenue from the ratings division and an 8% year-over-year rise in subscription products. In response to these strong earnings and revenue results, Morgan Stanley, Goldman Sachs, and BMO Capital have all raised their price targets for S&P Global.
The firm's management has notably upgraded its full-year 2024 outlook for rated debt issuance from a 6-10% increase to approximately 25%. This adjustment is anticipated to result in mid-teens growth in Ratings revenue. Alongside the Ratings business, S&P Global's non-Ratings divisions, specifically the Indices and Commodity Insights segments, are also consistently achieving robust high-single-digit revenue growth.
In other recent developments, S&P Global has successfully completed the acquisition of Visible Alpha, thereby enhancing the company's financial modeling capabilities. Furthermore, a leadership transition is set to occur with CEO Doug Peterson retiring and Martina Cheung assuming the role of CEO starting November 1st. These developments are part of the recent news surrounding S&P Global.
InvestingPro Insights
S&P Global's strong market position, as highlighted by Evercore ISI, is further supported by data from InvestingPro. The company's market capitalization stands at an impressive $160.39 billion, reflecting its significant presence in the financial information and analytics industry.
InvestingPro Tips reveal that S&P Global has maintained dividend payments for 54 consecutive years and has raised its dividend for 11 consecutive years. This consistent dividend history aligns with the company's stable business model and diverse portfolio mentioned in the article.
The company's financial performance is robust, with a revenue of $13.28 billion in the last twelve months as of Q2 2024, showing a growth of 10.09%. This growth trajectory supports Evercore ISI's positive outlook on the company's future earnings potential.
While Evercore ISI predicts a potential decrease in the P/E multiple, it's worth noting that S&P Global is currently trading at a high P/E ratio of 48.68. This premium valuation aligns with the article's mention of S&P Global's historical premium over the S&P 500.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for S&P Global, providing a deeper insight into the company's financial health and market position.
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