A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
One such stock is S&P Global Inc. SPGI), which has gained 26.4% so far this year, outperforming the 20.7% rally of the industry it belongs to and 14.9% rise of the Zacks S&P 500 composite.
It has an expected long-term (three to five years) earnings per share growth rate of 17.6%. Its earnings are expected to register 6.4% growth in 2019 and 9.8% growth in 2020.
A Look at the Positives
S&P Global is well poised to gain from increasing demand for business information services. Changes in market dynamics are more or less a constant phenomenon and expose companies to credit fund as well as operational risks. Accurate market and financial information is required for risk mitigation, which spurs demand for business information services. Steady economic growth in the United States along with rise in corporate earnings on tax reforms and increased business spending has kept the industry in good shape.
Acquisition is a key growth strategy for S&P Global that enables it to innovate consistently, increase differentiated content and develop new products. In 2018, the company acquired RateWatch, Kensho and Panjiva. RateWatch is a great addition to S&P Global’s bank data offering. The Kensho acquisition is expected to improve the company’s core operations by applying actionable insights through the use of AI solutions and sophisticated algorithms, thereby augmenting efficacy. The Panjiva buyout is likely to enhance the company’s Global Market Intelligence data and analytical offerings for diverse customers across the globe, which will generate higher revenues.
Effective management execution led to cash, cash equivalents, and restricted cash of $1.96 billion as of Dec 31, 2018. The company continues to use excess cash to aggressively buy back shares and pay dividends. In 2018, S&P Global returned $2.2 billion to shareholders, which includes $1.7 billion through share repurchases and $503 million in dividend payments. Additionally, a strong cash position provides the company flexibility to pursue growth in areas that exhibit true potential.
Despite significant growth prospects, S&P Global is not free from overhangs. The market for credit ratings, financial research, investment advisory services, market data, index-based products and commodities price assessments is highly competitive. This makes revenue and margin expansion a challenge for S&P Global. Decline in global debt issuance has been weighing on S&P Global’s Ratings revenues. The company is vulnerable to proceedings, investigations and inquiries with respect to the ratings provided, leading to legal charges, damages or fines. Nevertheless, we believe that favorable growth dynamics and a strong financial profile bode well for S&P Global.
Zacks Rank & Stocks to Consider
S&P Global currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the broader Zacks Business Services sector are Insperity NSP, MAXIMUS MMS and Automatic Data Processing ADP. While Insperity sports a Zacks Rank #1, MAXIMUS and Automatic Data Processing carry a Zacks Rank #2 (Buy).
Long-term expected EPS (three to five years) growth rate for Insperity, MAXIMUS and Automatic Data Processing is 18%, 10% and 13%, respectively.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
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S&P Global Inc. (SPGI) : Free Stock Analysis Report
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