Financial Services Stocks

S&P Global Inc Valuation – March 2019 #SPGI

Company Profile (excerpt from Reuters): S&P Global Inc., formerly McGraw Hill Financial Inc., incorporated on December 29, 1925, is a provider of ratings, benchmarks, analytics and data to the capital and commodity markets around the world. The Company operates through three segments: Ratings, Market and Commodities Intelligence, and S&P Dow Jones Indices (Indices). The Company provides ratings related to new issuance of corporate and government debt instruments, and structured finance debt instruments; bank loan ratings; and corporate credit estimates, which are intended, based on an abbreviated analysis, to provide an indication of its opinion regarding creditworthiness of a company, which does not have a Ratings credit rating. The Company serves its customers through a range of products and services available through both third party and its distribution channels. The Company’s subsidiary, CRISIL Limited (CRISIL), is a global analytical company and a provider of ratings, data and research, analytics and solutions.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SPGI – March 2019

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 $48,772,834,606 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.37 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 211.84% Pass
6. Moderate PEmg Ratio PEmg < 20 26.10 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 72.20 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 1.37 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.76 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.52
MG Growth Estimate 15.00%
MG Value $289.39
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $108.99
MG Value based on 0% Growth $63.89
Market Implied Growth Rate 8.80%
Current Price $196.20
% of Intrinsic Value 67.80%

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. 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 Undervalued after growing its EPSmg (normalized earnings) from $2.68 in 2015 to an estimated $7.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.8% 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 above the price.

At the time of valuation, further research into S&P Global Inc revealed the company was trading above its Graham Number of $22.47. The company pays a dividend of $2 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 26.1, which was above the industry average of 21.22. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.54.

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) -$20.54
Graham Number $22.47
PEmg 26.10
Current Ratio 1.37
PB Ratio 72.20
Current Dividend $2.00
Dividend Yield 1.02%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,604,000,000
Total Current Liabilities $2,629,000,000
Long-Term Debt $3,662,000,000
Total Assets $9,458,000,000
Intangible Assets $5,059,000,000
Total Liabilities $8,774,000,000
Shares Outstanding (Diluted Average) 251,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.88
Dec2018 $7.73
Dec2017 $5.78
Dec2016 $7.94
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.52
Dec2018 $6.24
Dec2017 $5.16
Dec2016 $4.44
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

Recommended Reading:

Other ModernGraham posts about the company

S&P Global Inc Valuation – May 2018 $SPGI
S&P Global Inc Valuation – Initial Coverage $SPGI

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Disclaimer:

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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