Why Is S&P Global (SPGI) Up 7.1% Since Last Earnings Report?

A month has gone by since the last earnings report for S&P Global (SPGI). Shares have added about 7.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

S&P Global Surpasses Q1 Earnings & Revenue Estimates

S&P Global reported solid first-quarter 2020 results, wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $2.73 beat the consensus mark by 15.7% and improved 29.4% year over year on the back of revenue growth, benefits of productivity initiatives and reduced business travel. Revenues of $1.79 billion beat the consensus estimate by 4.6% and improved 13.6% year over year.

Segmental Revenues

Ratings revenues of $825 million increased 19% year over year owing to solid issuance in the United States, in particular, record investment-grade issuance in March.  Non-transaction revenues improved 6% to $393 million. Transaction revenues increased 33% to $432 million owing to an increase in global bond issuance and increased bank loan rating activity. 

Market Intelligence revenues were up 8% year over year to $519 million, primarily driven by growth in Data Management Solutions, Credit Risk Solutions, and Desktop and the inclusion of 451 Research.

Platts revenues rose 4% to $215 million backed by growth in both core subscription business and Global Trading Services.

S&P Dow Jones Indices revenues increased 20% to $259 million driven by 59% growth in exchange-traded derivative fees and 11% increase in asset-linked fees.

Operating Results

Adjusted operating profit margin improved 580 basis points (bps) to 53.1%.

Segment wise, Ratings adjusted operating profit increased 41% to $521 million. Adjusted operating profit margin improved 1,010 bps to 63.1%.

For Market Intelligence, adjusted operating profit improved 5% to $160 million. Adjusted operating profit margin decreased 80 bps to 30.9%.

Platts’ adjusted operating profit increased 11% to $114 million and adjusted operating profit margin increased 320 bps to 52.9%.

S&P Dow Jones adjusted operating profit increased 21% to $183 million. Adjusted operating profit margin improved 90 bps to 70.6%.

Balance Sheet and Cash Flow

S&P Global exited first-quarter 2020 with cash, cash equivalents, and restricted cash of $1.95 billion compared with $2.89 billion at the end of the prior quarter. Long-term debt of $3.95 billion was flat year over year.

The company generated $680 million of cash from operating activities in the reported quarter. Free cash flow was $618 million. Capital expenditures totaled $11 million.

During the reported quarter, the company returned $1.3 billion to shareholders including $1 billion through an ASR program that was initiated in early February, $150 million through open market share repurchases in January and February, and $161 million in dividends. 

2020 Guidance

S&P Global lowered its full-year adjusted EPS guidance in the range of $9.95-$10.15 from the prior guidance of $10.40-$10.60.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, S&P Global has a strong Growth Score of A, 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 B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, S&P Global has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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