S&P Global Banks on Strategic Buyouts Amid High Competition
Shares of S&P Global Inc. SPGI have gained 18.7% on a year-to-date basis compared with the industry’s rise of 15.1%.
Recently, the company delivered mixed fourth-quarter 2018 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. Adjusted earnings per share (EPS) of $2.22 outpaced the consensus mark by 2 cents and improved 20% year over year. Revenues of $1.54 billion lagged the Zacks Consensus Estimate by $69.9 million. Also, the top line declined 3.3% year over year on a reported basis and 4% organically.
S&P Global has an impressive surprise history. The company beat estimates in each of the trailing four quarters, the average being 2.2%. For the first quarter of 2019, the consensus mark declined 4.5% in the past 60 days.
Factors that Bode Well
The company 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 has made acquisitions of 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's data and analytical offerings for diverse customers across the globe, which will generate higher revenues. Going ahead, we expect S&P Global to continue adding advanced technology and data sets through acquisitions, which is likely to boost the company’s top- and bottom-line growth.
A strong cash position provides the company flexibility to pursue growth in areas that exhibit true potential. As of Dec 31, 2018, S&P Global had cash and cash equivalents as well as restricted cash of $1.96 billion.
Risks
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 is been weighing on S&P Global’s Ratings revenue.
The company is vulnerable to proceedings, investigations and inquiries with respect to the ratings provided, leading to legal charges, damages or fines.
Zacks Rank & Stocks to Consider
Currently, S&P Global 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 Zacks Business Services sector are General Finance Corporation GFN, National CineMedia, Inc. NCMI and Everi Holdings Inc. EVRI, each carrying a Zacks Rank #2 (Buy).
The long-term expected EPS (three to five years) growth rate for General Finance Corporation, National CineMedia and Everi Holdings is 14.3%, 38.5% and 20%, respectively.
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