Why Is S&P Global (SPGI) Down 8.3% Since Last Earnings Report?

It has been about a month since the last earnings report for S&P Global (SPGI). Shares have lost about 8.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is S&P Global due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

S&P Global Beats Q4 Earnings Estimates

S&P Global reported solid fourth-quarter 2019 results, wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $2.53 beat the consensus mark by 4.9% and improved 14% year over year on the back of revenue growth and benefits of productivity initiatives, partially offset by investment spending, payments associated with the early retirement of company bonds, and a higher effective tax rate. 

Revenues of $1.74 billion beat the consensus estimate by 2% and improved 13% year over year.

Segmental Revenues

Ratings revenues of $820 million increased 24% year over year. Non-transaction revenues improved 2% to $391 million on the back of increased fees associated with surveillance and intersegment royalties.  Transaction revenues increased 55% to $429 million, owing to strong bond rating activity partially offset by lower bank loan rating revenues.

Market Intelligence revenues were up 5% year over year to $502 million, primarily driven by solid growth in Data Management Solutions and Credit Risk Services.

Plattsrevenues rose 1% to $213 million.

S&P Dow Jones Indices revenues increased 9% to $233 million driven by increased asset-linked fees, partially offset by decreased derivatives trading activity.

Operating Results

Adjusted operating profit increased 14% year over year to $866 million. Adjusted operating profit margin improved 40 basis points (bps) to 49.9%.

Segment wise, Ratings adjusted operating profit increased 29% to $473 million. Adjusted operating profit margin improved 220 bps to 57.7%.

For Market Intelligence, adjusted operating profit declined 6% to $172 million. Adjusted operating profit margin decreased 410 bps to 34.4%.

Platts’ adjusted operating profit increased 6% to $107 million and adjusted operating profit margin increased 220 bps to 50.4%.

S&P Dow Jones adjusted operating profit increased 10% to $158 million. Adjusted operating profit margin improved 70 bps to 67.8%.

Balance Sheet and Cash Flow

S&P Global exited fourth-quarter 2019 with cash, cash equivalents, and restricted cash of $2.89 billion compared with $2.02 billion at the end of the prior quarter. Long-term debt came in at $3.95 billion compared with $2.97 billion in the prior quarter.

The company generated $1 billion of cash from operating activities in the reported quarter. Free cash flow was $923 million. Capital expenditures totaled $38 million.

Share Repurchases & Dividend Payout

The company returned $1.8 billion to shareholders in 2019 with $1.2 billion in share repurchases and $560 million in dividends.  As of Dec 31, 2019, the company had 4.7 million authorized shares available for repurchase. On Jan 29, 2020, the company’s board of directors approved an additional repurchase authority of 30 million shares.

On Jan 29, 2020, the company’s board of directors approved a 17.5% dividend hike, thereby increasing the quarterly cash dividend from 57 cents per share to 67 cents. The next dividend will be paid out on Mar 11, 2020, to shareholders of record on Feb 26, 2020.  The new annualized dividend rate is $2.68 per share.

2020 Guidance

S&P Global unveiled its full-year adjusted EPS guidance in the range of $10.40-$10.60. Free cash flow excluding certain items is expected to be $2.6-$2.7 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, S&P Global has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise S&P Global has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
S&P Global Inc. (SPGI) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research