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Can Higher Margins Drive S&P Global's (SPGI) Q3 Earnings?

Zacks Equity Research
Updated

S&P Global, Inc. SPGI is slated to report third-quarter 2017 results before the opening bell on Oct 26. The company is likely to report higher adjusted net operating profit with strategic portfolio restructuring efforts.

This, in turn, is likely to result in higher earnings for the quarter year over year.

Margin Improvement

S&P Global has been consistently making strategic investments in businesses to facilitate long-term profitability. The formation of S&P Dow Jones Indices coupled with S&P Capital IQ’s acquisitions of Credit Market Analysis Limited, QuantHouse, R2 Financial Technologies and TheMarkets.com along with a significant stake in India’s leading rating agency CRISIL, position it well. This gives it an edge over competitors and allows it to grab a wider market through superior functionality and investor-oriented services. Moreover, the company is well on track with SNL Financial’s integration and anticipates generating synergies.

The company’s strategic portfolio restructuring and focus on core business will continue to drive growth. This apart, strategic acquisitions and positive industry trends like surge of new high-yield bonds and leveraged loans, fuelled by tight interest-rate spreads, augur well.

The Zacks Consensus Estimate for S&P Capital IQ revenues is currently pegged at $426 million, up from $414 million reported in the second quarter. Total revenues are expected to be $1,442 million compared with reported revenues of $1,439 million in the year-ago quarter. Operating profit for the S&P Dow Jones Indices is estimated to be $121 million compared with $120 million in the previous quarter while that for Commodities & Commercial markets is expected to be up from $191 million to $225 million.

Other Key Factors

The successful integration of SNL Financial is likely to complement the S&P Capital IQ and Platts businesses, which will help S&P Global avail cost cuts and revenue synergies. Moreover, it will enable global expansion on a greater scale especially within the banking and insurance sectors, while media and real estate areas are likely to emerge as new opportunities.

Moreover, our proven model conclusively shows that S&P Global is likely to beat earnings this quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.15% with the former currently pegged at $1.57 and the latter at $1.52. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

S&P Global Inc. Price and EPS Surprise

 

S&P Global Inc. Price and EPS Surprise | S&P Global Inc. Quote

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Zacks Rank: S&P Global has a Zacks Rank #2. This coupled with a positive ESP increases the predictive power of ESP and makes us reasonably confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Applied Materials, Inc. AMAT has an Earnings ESP of +0.37% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Franklin Resources, Inc. BEN has an Earnings ESP of +0.56% and a Zacks Rank #2.

KEMET Corporation KEM has an Earnings ESP of +7.46% and a Zacks Rank #1.

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S&P Global Inc. (SPGI) : Free Stock Analysis Report
 
Kemet Corporation (KEM) : Free Stock Analysis Report
 
Franklin Resources, Inc. (BEN) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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Zacks Investment Research