Foxberry Integration And Moody's Partnership Will Expand Global Custom Indices

Key Takeaways

• Enhanced customization capabilities and partnerships are expected to drive demand and boost both revenue and subscription growth.
  
• Focus on climate-related assets and sustainability solutions is anticipated to support long-term growth and improve revenue.
  
• MSCI's revenue growth faces constraints from reduced new sales, pricing challenges, ESG headwinds, foreign exchange risks, and client budget constraints amid economic uncertainty.

Catalysts

Provides critical decision support tools and solutions for the investment community to manage investment processes worldwide.

• MSCI's integration of the Foxberry F9 platform is expected to enhance the customization capabilities of its indices, likely driving increased demand for its index solutions, which could positively impact revenue growth.
  
• The partnership with Moody's to develop credit risk assessments for private credit is positioned to attract more institutional clients who need robust risk management tools, potentially increasing MSCI's subscription revenue and improving net margins due to higher value service offerings.
  
• Strong traction in ETF and non-ETF assets linked to MSCI indices, especially in climate-related funds, along with substantial cash inflows, suggests a favorable outlook for asset-based fee revenue, positively impacting earnings.
  
• Positive momentum in custom indices and the demand for geographical exposure outside the U.S., especially in Europe and Japan, could contribute to subscription growth and higher asset-based fee revenue, enhancing overall revenue.
  
• MSCI's focus on refining Sustainability and Climate solutions to meet evolving regulatory demands and client needs, including in the physical risk space, is expected to support stable long-term growth in this segment, positively affecting revenue.

MSCI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MSCI's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 39.1% today to 42.8% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $20.91) by about April 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.4x on those 2028 earnings, down from 36.6x today. This future PE is greater than the current PE for the US Capital Markets industry at 23.1x.
• Analysts expect the number of shares outstanding to decline by 2.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.28%, as per the Simply Wall St company report.

MSCI Future Earnings Per Share Growth

Risks

• MSCI's revenue growth is constrained by a decrease in new recurring subscription sales compared to the previous year, which may persist if economic uncertainties lead to clients delaying or scaling back on new purchases, impacting revenue.
  
• The company faces potential challenges in pricing power or discounting to maintain retention rates, which could pressure net margins if MSCI has to offer more competitive pricing to retain or attract clients.
  
• The broader industry trend of environmental, social, and governance (ESG) sustainability headwinds, particularly in the U.S., and regulatory complexities in Europe could hinder growth in MSCI’s Sustainability and Climate segment, impacting overall revenue growth.
  
• With a significant portion of MSCI's assets under management (AUM) linked to non-U.S. markets, fluctuations in foreign exchange rates and geopolitical risks could adversely affect earnings if global market conditions deteriorate or the U.S. dollar strengthens.
  
• The current macroeconomic environment, including high levels of volatility and uncertainty, might lead to increased client cost-cutting measures or budget constraints, which can delay potential sales and affect MSCI's revenue trajectory.

Valuation

• The analysts have a consensus price target of $621.867 for MSCI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $682.0, and the most bearish reporting a price target of just $520.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 35.4x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $538.48, the analyst price target of $621.87 is 13.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.