S&P Global Inc Valuation – Initial Coverage $SPGI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how S&P Global Inc (SPGI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): S&P Global Inc., formerly McGraw Hill Financial, Inc., is a provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets across the world. The Company’s products cater to the capital markets, which includes asset managers, investment banks, commercial banks, exchanges and issuers; the commodities markets, which includes producers, traders and intermediaries within energy, metals, petrochemicals and agriculture, and the commercial markets, which includes professionals and corporate executives within automotive and marketing/research information services. The Company operates its business through four segments: Standard & Poor’s Ratings Services (S&P Ratings), S&P Global Market Intelligence, S&P Dow Jones Indices (S&P DJ Indices) and S&P Global Platts. The Company serves through a range of products and services available through both third-party and distribution channels.

SPGI Chart

SPGI data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SPGI – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,390,549,353 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.21 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 40.23% Pass
6. Moderate PEmg Ratio PEmg < 20 30.19 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 72.26 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.21 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.46 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.17
MG Growth Estimate 11.98%
MG Value $135.28
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $60.45
MG Value based on 0% Growth $35.43
Market Implied Growth Rate 10.84%
Current Price $125.84
% of Intrinsic Value 93.02%

S&P Global Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.32 in 2012 to an estimated $4.17 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.84% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into S&P Global Inc revealed the company was trading above its Graham Number of $16.9. The company pays a dividend of $1.41 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 30.19, which was above the industry average of 21.33. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.

S&P Global Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$17.00
Graham Number $16.90
PEmg 30.19
Current Ratio 1.21
PB Ratio 72.26
Current Dividend $1.41
Dividend Yield 1.12%
Number of Consecutive Years of Dividend Growth 20


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $3,704,000,000
Total Current Liabilities $3,051,000,000
Long-Term Debt $3,563,000,000
Total Assets $8,676,000,000
Intangible Assets $4,476,000,000
Total Liabilities $8,214,000,000
Shares Outstanding (Diluted Average) 265,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.12
Dec2015 $4.21
Dec2014 -$0.42
Dec2013 $4.91
Dec2012 $1.53
Dec2011 $3.00
Dec2010 $2.65
Dec2009 $2.33
Dec2008 $2.51
Dec2007 $2.94
Dec2006 $2.40
Dec2005 $2.21
Dec2004 $1.96
Dec2003 $1.79
Dec2002 $1.48
Dec2001 $0.96
Dec2000 $1.03
Dec1999 $1.07
Dec1998 $0.83
Dec1997 $0.73
Dec1996 $1.24

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.17
Dec2015 $2.68
Dec2014 $2.05
Dec2013 $3.15
Dec2012 $2.32
Dec2011 $2.70
Dec2010 $2.56
Dec2009 $2.50
Dec2008 $2.53
Dec2007 $2.44
Dec2006 $2.12
Dec2005 $1.88
Dec2004 $1.62
Dec2003 $1.39
Dec2002 $1.15
Dec2001 $0.97
Dec2000 $0.97

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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