S&P Global Inc. (SPGI) is scheduled to report its fourth-quarter and full-year results on February 8. Wall Street expects SPGI’s revenue and EPS to increase year-over-year. In this piece, I have discussed why it could be wise to wait for a better entry point in the stock despite the potential improvement in the stock’s revenue and earnings.

For the fourth quarter, SPGI’s EPS and revenue are expected to increase 23.6% and 6.5% year-over-year to $3.14 and $3.13 billion, respectively. The company has a solid earnings history, having beaten the consensus estimate in three of the trailing four quarters.

During the third quarter, the company beat Wall Street’s expectations on both top and bottom lines. Commenting on SPGI’s third-quarter results, President and CEO Douglas Peterson said, “Our third-quarter results clearly demonstrate our ability to adapt to rapidly evolving market conditions and consistently deliver excellent results.”

“Revenue growth accelerated in every division. We continue to invest in innovation, as evidenced by the multiple product launches in the third quarter, and we continue to demonstrate the disciplined execution on expenses that our shareholders have come to expect. We are very pleased with the results this quarter and look forward to a strong finish to 2023,” he added.

For fiscal 2023, SPGI narrowed the range of expected growth in non-GAAP adjusted revenue from the previous guidance of between 4% and 6% to between 4.5% and 5.5%. The company raised the adjusted EPS estimates of the prior forecast of between $12.35 and $12.55 to now between $12.50 and $12.60. Its adjusted operating profit margin is expected to be between 45.5% and 46.5%.

The company had a target of achieving $600 million in cost synergies in 2023 and has achieved $588 million in cost synergies till the previous quarter. Moreover, SPGI has targeted revenue synergies of $350 million by 2026 and has set a target of achieving 45% of the target in 2024. By the third quarter, it had achieved revenue synergies of $112 million.

On January 23, 2024, SPGI’s board of directors approved a 1.1% increase in the regular quarterly cash dividend on the company’s common stock. The company will pay a dividend of $0.91 per share on March 12, 2024.

SPGI’s stock has gained 26.8% over the past nine months and 17.9% over the past year to close the last trading session at $451.54.

Here’s what you might want to consider ahead of its upcoming earnings release:

Robust Financials

SPGI’s revenue for the fiscal third quarter ended September 30, 2023, increased 8% year-over-year to $3.08 billion. Its adjusted net income attributable to SPGI rose 5.6% year-over-year to $1.02 billion. The company’s adjusted operating income increased 10% over the prior-year quarter to $1.45 billion.

Also, its adjusted EPS came in at $3.21, representing an increase of 9.6% year-over-year. In addition, its adjusted pro forma adjusted free cash flow, excluding certain items, increased by 15.2% year-over-year.

Favorable Analyst Estimates

Analysts expect SPGI’s EPS and revenue for fiscal 2023 to increase 12.7% and 5.1% year-over-year to $12.61 and $12.44 billion, respectively. Its fiscal 2024 EPS and revenue are expected to increase 14.5% and 7.3% year-over-year to $14.43 and $13.35 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, SPGI’s 36.01x is 241.3% higher than the 10.55x industry average. Its 2.95x forward non-GAAP PEG is 113.8% higher than the 1.38x industry average. Likewise, its 27.33x forward EV/EBIT is 143.1% higher than the 11.25x industry average.

Mixed Profitability

In terms of the trailing-12-month EBITDA margin, SPGI’s 44.28% is 104% higher than the 21.71% industry average. Likewise, its 28.48x trailing-12-month levered FCF margin is 60.8% higher than the industry average of 17.72x. Also, its 35.10x trailing-12-month EBIT margin is 60.4% higher than the industry average of 21.88x.

SPGI’s 1% trailing-12-month Capex/Sales is 50.5% lower than the 2.02% industry average. Likewise, its 0.20x trailing-12-month asset turnover ratio is 4.5% lower than the 0.21x industry average. Furthermore, the stock’s 20.19% trailing-12-month net income margin is 13.7% lower than the industry average of 23.41%.

Mixed Historical Growth

SPGI’s revenue grew at a CAGR of 18.9% over the past three years. Its EBIT grew at a CAGR of 3.9% over the past three years. In addition, its net income grew at a CAGR of 0.7% in the same time frame.

On the other hand, its EPS contracted at a CAGR of 8.2% over the past three years.

POWR Ratings Reflect Uncertainty

SPGI has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SPGI has a C grade for Quality, consistent with its mixed profitability. Its mixed historical growth justifies its C grade for Growth.

It has a D grade for Value, in sync with its stretched valuation.

SPGI is ranked #33 out of 100 stocks in the Financial Services – Enterprise industry. Click here to access SPGI’s Momentum, Stability, and Sentiment ratings.

Bottom Line

SPGI aimed to end fiscal 2023 on a strong note with robust growth across all its segments. The company is expected to report strong growth in revenue and operating margin across its different segments.

Its new product launches, which are expected to fuel its growth, are leveraging its cross-divisional assets and the power of AI. Furthermore, the company is on track to complete cost synergies by 2023 and achieving revenue synergies by 2026.

Despite the solid developments, SPGI trades at an expensive valuation. Also, given its mixed profitability and historical growth, it could be wise to wait for a better entry point in the stock.

How Does S&P Global Inc. (SPGI) Stack Up Against Its Peers?

SPGI has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Financial Services – Enterprise industry: Manhattan Bridge Capital, Inc. (LOAN), Tingyi (Cayman Islands) Holding Corp. (TYCMY), and Jiayin Group Inc. (JFIN). To explore more Buy-rated Financial Services – Enterprise stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

SPGI shares were trading at $451.57 per share on Tuesday morning, up $0.03 (+0.01%). Year-to-date, SPGI has gained 2.51%, versus a 3.72% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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