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S&P Global (SPGI) Up 4.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for S&P Global (SPGI - Free Report) . Shares have added about 4.3% 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 drivers.

S&P Global Beats Q3 Earnings Estimates

 

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

Adjusted earnings per share of $2.46 beat the consensus mark by 13 cents and improved 16% year over year on the back of revenue growth and benefits of productivity initiatives. Revenues of $1.69 billion beat the consensus estimate by $33.2 million and improved 9% year over year.

Segmental Revenues

Ratings revenues of $789 million increased 13% year over year on the back of strong high-yield issuance in the United States and Europe and strong U.S. investment-grade issuance. Transaction revenues of $402 million increased 25%, driven by solid debt rating activity and increase in bank loan rating activity. Non-transaction revenues improved 2% to $387 million.

Market Intelligence revenues were up 5% year over year to $488 million, primarily driven by solid growth in Data Management Solutions, Credit Risk Solutions and Desktop.

Platts revenues rose 4% to $212 million owing to growth in both core subscription business and Global Trading Services.

S&P Dow Jones Indices revenues increased 14% to $232 million driven by 17% gain in asset-linked fees and 12% increase in exchange-traded derivative fees. 

Operating Results

Adjusted operating profit increased 14% year over year to $877 million. Adjusted operating profit margin improved 230 basis points (bps) to 51.9%.

Segment wise, Ratings adjusted operating profit increased 19% to $472 million. Adjusted operating profit margin improved 340 bps to 59.9%.

For Market Intelligence, adjusted operating profit declined slightly to $167 million.  Adjusted operating profit margin decreased 160 bps to 34.3%.

Platts’ adjusted operating profit increased 5% to $107 million and adjusted operating profit margin increased 40 basis points to 50.7%.

S&P Dow Jones adjusted operating profit increased 19% to $163 million. Adjusted operating profit margin improved 280 bps to 70.1%. 

Balance Sheet and Cash Flow

S&P Global exited third-quarter 2019 with cash, cash equivalents, and restricted cash of $2.02 billion compared with $1.92 billion at the end of the prior quarter. Long-term debt came in at $2.97 billion compared with $3.66 billion in the prior quarter.

The company generated $762 million of cash from operating activities in the reported quarter. Free cash flow was $690 million. Capital expenditures totaled $31 million.

Share Repurchases & Dividend Payout

During the third quarter of 2019, the company returned $640 million to shareholders. This includes $500 million through share repurchases (through an accelerated share repurchase (ASR) that was initiated in August) and $140 million in dividends.

2019 Guidance

S&P Global raised its full-year adjusted EPS guidance from the range of $9.10-$9.25 to the range of $9.30- $9.40.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, S&P Global 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise 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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