Integrating Foxberry F9 And Developing ESG Solutions Will Meet Increased Client Demand

Key Takeaways

• Integration of specialized platforms and strategic partnerships could boost revenue growth through enhanced offerings and increased product adoption.
  
• Investments in AI, technology, and innovation are poised to improve operational efficiencies, leading to potentially higher net margins and premium pricing.
  
• Reliance on market conditions and potential regulatory changes pose risks to MSCI's revenue growth and client retention, especially in ESG and Real Assets segments.

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 into its custom index capabilities aims to meet increased client demand for specialized portfolio construction tools, which could drive growth in revenue through enhanced product offerings.
  
• The launch of MSCI Wealth, focused on helping wealth managers build scalable, personalized portfolios, is expected to attract more AUM from wealth managers, potentially leading to increased subscription revenue and retention rates.
  
• Significant investments in MSCI's Fixed Income analytics and the completion of a large U.S.-based asset manager deal highlight potential for revenue growth from enhanced fixed income capabilities and contracts.
  
• Strategic partnerships and innovations, such as expanding index data use with investment banks and developing ESG and climate-related solutions, are likely to support future ABF run rate growth, increasing MSCI's earnings from ongoing product adoption.
  
• Continued investment in AI and technology to enhance data acquisition and product innovation is expected to create operational efficiencies and new revenue streams, potentially improving net margins through reduced costs and premium product pricing.

MSCI Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MSCI's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 38.8% today to 42.3% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $20.5) 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 38.1x on those 2028 earnings, down from 39.7x today. This future PE is greater than the current PE for the US Capital Markets industry at 25.7x.
• Analysts expect the number of shares outstanding to decline by 1.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

MSCI Future Earnings Per Share Growth

Risks

• MSCI's strong reliance on market levels and fund inflows for revenue growth poses a risk, as any downturn in market conditions could adversely affect revenues and the financial sustainability of its clients.
  
• The continued cyclic pressure on active asset managers, particularly in Europe, which saw lingering budget constraints and elevated levels of events, might impact MSCI's subscription run rate growth and overall earnings.
  
• Uncertainty and potential regulatory changes in the U.S. regarding ESG issues could create revenue volatility, especially since MSCI's ESG and Climate products are an important growth area.
  
• Elevated cancellations in areas like Real Assets and ESG and Climate from issues such as client events, vendor consolidation, and segmented pressures could negatively affect retention rates and subscription revenue.
  
• Competition in the index and analytics space necessitates MSCI's continual product enhancements and efficient pricing strategy to maintain its market share, impacting overall net margins if not managed well.

Valuation

• The analysts have a consensus price target of $659.0 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 $723.0, and the most bearish reporting a price target of just $530.0.
• 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 38.1x, assuming you use a discount rate of 7.3%.
• Given the current share price of $567.3, the analyst price target of $659.0 is 13.9% 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.