MSCI: Improved Margins And Share Buybacks Will Drive Stock Momentum

Key Takeaways

• Rising global demand for ETFs, ESG, and advanced analytics is fueling recurring, high-margin revenue growth and expanding MSCI's client base.
  
• Innovation and cross-selling of proprietary data and tools are strengthening pricing power, revenue diversification, and long-term margin expansion.
  
• Muted growth prospects, lower retention, fee compression, data risks, and intensifying competition could constrain MSCI's long-term revenue, margins, and market positioning.

Catalysts

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

• Substantial growth in asset-based fee revenue is being driven by surging global flows into ETFs and index-linked products-especially for non-U.S. and international exposures-underscoring persistent structural demand for MSCI's indices as capital allocators seek globally diversified portfolios, which directly boosts revenue and earnings.
  
• Expanding mandates and product innovation in the climate, sustainability, and ESG domains are positioning MSCI to benefit from rising regulatory and asset owner requirements for ESG/climate data-expected to translate into higher subscription revenue and increased pricing power over time, supporting both top-line growth and net margins.
  
• The company is capitalizing on the growing institutionalization of wealth management and increasing demand for advanced portfolio construction, direct indexing, and analytics tools, evidenced by record wins in wealth management; this is likely to result in a greater share of recurring, high-margin subscription revenue and long-term margin expansion.
  
• Accelerated development and cross-selling of proprietary data, analytics, and private capital solutions (including recently launched products and business lines like private equity benchmarks and risk tools) will tap into new client bases and increase wallet share among institutional clients, driving durable multi-year compounded revenue growth.
  
• Positive mix-shift toward non-traditional client segments-such as banks, hedge funds, insurance companies, and private asset GPs-combined with continued globalization of asset allocation, will reduce reliance on stagnant active manager segments and support both revenue diversification and stability of earnings.

MSCI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MSCI's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 39.5% today to 42.7% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $21.72) by about September 2028, up from $1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.7x on those 2028 earnings, down from 37.4x today. This future PE is greater than the current PE for the US Capital Markets industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.31%, as per the Simply Wall St company report.

MSCI Future Earnings Per Share Growth

Risks

• Persistent industry consolidation and budget constraints among active asset managers-who represent about half of MSCI's subscription run rate-are expected to keep growth in this segment muted, potentially limiting acceleration in total subscription revenues over the long term.
  
• Slightly lower retention rates, particularly in analytics, sustainability, and climates segments, driven by client events and cyclical budget pressures (especially among hedge funds and corporate advisers), could pressure future recurring revenues and net margins if elevated cancellation trends persist.
  
• Although asset-based fee (ABF) revenues continue to grow due to inflows into international and thematic ETFs, MSCI's long-term guidance acknowledges gradual fee compression over time in passive products, which could lead to margin compression if AUM growth slows or fails to offset declining yields.
  
• Heavy reliance on anonymized aggregated private markets data and current GP data-sharing arrangements pose risk of future limitations, especially as wealth management distribution expands; this could cap MSCI's growth in private assets solutions, impacting both incremental revenue opportunities and product differentiation.
  
• Competitive threats from both established and emerging index/data providers-particularly in custom indexing, direct indexing, and advanced AI-driven analytics-could erode MSCI's pricing power, market share, and long-term revenue growth, especially if product innovation in areas like ESG, climate, or private assets lags the pace of industry change.

Valuation

• The analysts have a consensus price target of $619.071 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 $700.0, 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 $3.8 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 35.7x, assuming you use a discount rate of 8.3%.
• Given the current share price of $569.16, the analyst price target of $619.07 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.