A month has gone by since the last earnings report for S&P Global Inc. (SPGI - Free Report) . Shares have added about 5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SPGI due for a pullback? Before we dive into how investors and analysts have reacted 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.
First Quarter Results
S&P Global reported better-than-expected first-quarter 2018 results.
Adjusted earnings of $2.00 per share surpassed the Zacks Consensus Estimate by 2 cents and increased 24% on year-over-year basis. The improvement can be attributed to revenue growth, operating leverage and U.S. tax reform that decreased the company’s adjusted effective tax rate to 21.7% from 30.3% in the year-ago quarter. Revenues of $1.57 billion outpaced the consensus mark by $27 million and increased 8% year over year. The top-line improvement was driven by growth in all business segments.
Ratings’ revenues increased 5% year over year to $748 million driven by an increase in non-transaction revenues, which increased 11% to $380 million. Non-transaction revenues were driven by substantial increase in new entity ratings and Rating Evaluation Service fees as well as fees associated with surveillance. Transaction revenues inched down 1% to $368 million due to decline in corporate bonds and public finance, which was partially offset by gains in structured products.
Market Intelligence revenues were up 9% year over year to $437 million primarily driven by growth across Desktop, Data Management Solutions, and Risk Services. Platts revenues improved 3% to $196 million owing to growth in the core subscription business, partially offset by a decline in Global Trading Services. S&P Dow Jones Indices revenues surged 25% to $214 million mainly driven by a 59% rise in revenues related to exchange-traded derivatives activity. Also, revenues from asset-linked fees improved 21%.
The company’s adjusted operating profit margin for the quarter expanded 10 basis points (bps) to 47%. Going by segments, Ratings and S&P Dow Jones Indices adjusted operating profit margins improved 190 and 160 bps, respectively. The same from Market Intelligence and Platts declined 150 and 310 basis points, respectively.
Balance Sheet and Cash Flow
At the end of the quarter, S&P Global had cash and cash equivalents of $1.8 billion compared with $2.8 billion at the end of the fourth quarter of 2017. Long-term debt was $3.1 billion, in line with the previous quarter. The company generated cash from operating activities to the tune of $360 million compared with $353 million in the previous quarter. Free cash flow was $277 million, down from $306 million in the the fourth quarter of 2017. In the first quarter, the company returned $1.2 billion to shareholders through a combination of $127 million in dividends, $1 billion in the form of an accelerated share repurchase agreement and $100 million in open market share purchases.
Adjusted EPS are expected to be in the range of $8.45-$8.60 per share. Midpoint of this guided range is higher than the Zacks Consensus Estimate of $8.50. GAAP EPS is anticipated to be in the $7.95-$8.10 band.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower. While looking back an additional 30 days, we can see even more upward momentum. There has been only one move down in the last two months.
At this time, SPGI has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Notably, SPGI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.