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Why Is S&P Global (SPGI) Up 1.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for S&P Global (SPGI). Shares have added about 1.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is S&P Global due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

S&P Global Surpasses Q2 Earnings Estimates, Raises ’19 EPS View

S&P Global reported solid second-quarter 2019 results, wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $2.43 beat the consensus mark by 18 cents and improved 12% year over year on the back of revenue growth and benefits of productivity initiatives. Revenues of $1.70 billion beat the consensus estimate by $68.7 million and improved 6% year over year.

Segmental Revenues

Ratings revenues of $801 million increased 3% year over year on the back of solid U.S. high-yield issuance. Transaction revenues of $429 million improved 8% as debt rating activity outpaced the decline in bank loan rating activity.  Non-transaction revenues declined 1% to $372 million due to a $6 million decline resulting from changes in foreign exchange rates.

Market Intelligence revenues were up 8% year over year to $487 million, primarily driven by more than 10% growth in both Credit Risk Solutions and Data Management Solutions and low single-digit growth in Desktop.

Platts revenues increased 4% to $213 million owing to growth in both core subscription business and Global Trading Services.

S&P Dow Jones Indices revenues increased 14% to $235 million driven by gain in asset-linked fees and increase in data & custom subscriptions, partially offset by decline in exchange-traded derivative fees.

Operating Results

Adjusted operating profit increased 11% year over year to $874 million. Adjusted operating profit margin improved 220 basis points (bps) to 51.3%

Segment wise, Ratings adjusted operating profit increased 5% to $467 million. Adjusted operating profit margin improved 120 bps to 58.3%.

For Market Intelligence, adjusted operating profit increased 14% to $167 million.  Adjusted operating profit margin increased 180 bps to 34.3%.

Platts’ adjusted operating profit increased 9% to $111 million and adjusted operating profit margin increased 220 basis points to 52.1%.

S&P Dow Jones adjusted operating profit increased 19% to $164 million. Adjusted operating profit margin improved 280 bps to 69.6%.

Balance Sheet and Cash Flow

S&P Global exited second-quarter 2019 with cash, cash equivalents, and restricted cash of $1.92 billion compared with $1.44 billion at the end of the prior quarter. Long-term debt of $3.66 billion was flat sequentially. The company generated $717 million of cash from operating activities in the reported quarter. Free cash flow was $650 million. Capital expenditures totaled $26 million.

Share Repurchases & Dividend Payment

During the second quarter of 2019, the company returned $140 million to shareholders through dividends.  The $500 million accelerated share repurchase (ASR), which started in early February, continued and there were no open-market share repurchases during the reported quarter.  This ASR was completed in late July.  The company expects to initiate a new $500 million ASR program, which should continue till December 2019.

2019 Guidance

S&P Global raised its full-year adjusted EPS guidance from the range of $8.95-$9.15 to a range of $9.10- $9.25.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months.

VGM Scores

Currently, S&P Global has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

S&P Global has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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