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S&P Global (SPGI) Gains From Buyouts, Weak Issuance a Concern

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Shares of S&P Global Inc. (SPGI - Free Report) have gained a massive 35.4% over the past year, outperforming the 25.1% rally of the industry it belongs to.

The company recently reported strong second-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $2.17 beat the Zacks Consensus Estimate by 4 cents and increased 26% on a year-over-year basis.  Revenues of $1.6 billion outpaced the consensus mark by a mere $0.6 million and increased 6.6% year over year.

S&P Global also has an impressive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average beat of 7.2%.

Poised to Gain From Demand for Business Information Services

S&P Global is well positioned to gain from the growing demand for business information services. Constantly increasing volume of data from private and government organizations has augmented the demand for improved enterprise-wide financial performance visibility. Augmented demand for news, information and analytics solutions is driving growth for the market.

Further, the industry is benefiting from the rising demand for risk mitigation. Changes in market dynamics are more or less a constant phenomenon, and keep companies exposed to credit fund and operational risks. Accurate market and financial information are required for risk mitigation, which spur demand for services from companies like S&P Global. In the United States, steady economic growth, rise in corporate earnings on tax reforms, increased business spending have kept the industry in a good shape.

S&P Global Inc. Revenue (TTM)

S&P Global Inc. Revenue (TTM) | S&P Global Inc. Quote

Acquisitions Aiding Innovation, Differentiation and Product Development

Acquisition is a key growth strategy for S&P Global and it helps the company to continuously innovate, increase differentiated content and develop products. So far this year, 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 help S&P Global to improve its core operations by applying actionable insights through the use of AI solutions and sophisticated algorithms, thereby, augmenting its efficacy.

Panjiva buyout is likely to enhance the company’s Global Market Intelligence's data and analytical offerings for diverse customers across the globe, generating higher revenues. Moving ahead, we expect S&P Global to continue adding advanced technology and data sets through acquisitions, which, in turn, should boost the company’s top- and bottom-line growth.

Risks

Issuance in the United States and Asia has been weak for quite some time and this has become an area of concern. The initial issuance was so strong that it crowded out issuers capacity to tap re-pricing. S&P Global’s performance could be negatively impacted by a lower volume of debt securities, issued in the capital markets. Additionally, increase in interest rates or credit spreads may adversely affect the general level of debt issuance.

The market for credit rating, research, investment and advisory services is highly competitive. S&P Global’s financial segment, which consists of the Standard & Poor’s brand, competes globally on the basis of several attributes such as quality of ratings, research and investment advice, client service, range of products and services, and technological innovation. Industry bellwethers, Moody's Corp. and Fitch Ratings through their investor-friendly moves may hurt S&P Global’s market share, and in turn, weigh upon the top line and strain margins.

Zacks Rank & Stocks to Consider

S&P Global currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Business Services sector are SPS Commerce (SPSC - Free Report) , Heidrick & Struggles International (HSII - Free Report) and BG Staffing (BGSF - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share growth rate for SPS Commerce, Heidrick & Struggles International, and Insperity are 22.5%, 13.5% and 20%, respectively.

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