MSCI Faces Challenges Amidst Competitive Pressure and Rising Costs
Stock Performance Compared to Industry Peers
MSCI shares rose 16.1% over the past year. However, this is modest compared to the Zacks Computer and Technology sector’s 33.3% surge and the Zacks Business – Software Services sector’s increase of 34.6%. The slower growth appears to stem from tighter spending and extended sales cycles caused by difficult macroeconomic conditions.
Increasing pricing pressures are a significant concern, especially with the rise of free indices from competitors such as Morningstar MORN, which has enjoyed a 25.5% gain so far this year.
MSCI Inc Price and Consensus
MSCI Inc price-consensus-chart | MSCI Inc Quote
As Morningstar continues to expand its offerings, MSCI also faces challenges from self-indexing and reduced spending by asset managers on data acquisition. Despite these hurdles, MSCI is seeing strong demand for custom and factor index modules, recurrent revenue streams, and increased acceptance of its ESG and Climate solutions in investment practices.
Strong Product Portfolio Supports MSCI’s Growth
MSCI’s diverse portfolio and the robust growth of its Climate and ESG solutions have significantly contributed to its success. In the third quarter of 2024, the company reported 11.1% organic revenue growth, driven by strong performance in its Analytics, ESG, and Index Investments segments. Notably, organic growth in ESG and Climate solutions reached 11%.
In July, MSCI formed a strategic partnership with Moody’s MCO, enhancing the transparency of ESG (Environmental, Social, and Governance) metrics in financial markets. This collaboration combines MSCI’s ESG data with Moody’s Orbis database and credit scoring models.
Additionally, MSCI’s partnership with Microsoft MSFT aims to improve the global investment industry by utilizing Microsoft’s cloud and AI technologies, thereby modernizing MSCI’s products and enhancing ESG solutions.
Expanding Product Offerings Enhance Future Prospects
The company recorded positive momentum in its private capital solutions, with a 17% growth in run rate during the third quarter of 2024. This growth was fueled by new client relationships and an expanding range of products, such as the MSCI Private Capital Fund Indices.
In July, MSCI launched the MSCI Private Capital Indexes, covering over $11 trillion in private capital funds across 130 sectors, including private equity, credit, real estate, infrastructure, and natural resources. These indexes aim to improve investment decision-making in global private markets, further strengthening MSCI’s position in the private capital sector.
Earnings Estimates Indicate Positive Trends
MSCI’s broad portfolio and expanding clientele continue to spur its growth prospects. The Zacks Consensus Estimate for fourth-quarter 2024 revenues is currently $744.57 million, indicating a 7.89% year-over-year increase. Earnings per share estimates stand at $3.95, reflecting a 1.2% upward adjustment in the past 30 days and suggesting a year-over-year increase of 7.34%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Concerns Over Valuation
Even with its broad portfolio and increased clientele, tighter spending and rising competition may impact MSCI’s financial outcomes. The stock’s Value Score of D indicates a stretched valuation. Currently, the forward 12-month Price/Sales ratio stands at 15.35X, exceeding the Zacks Business – Software Services industry average of 11.68X.
With a Zacks Rank of #3 (Hold), it may be prudent to wait for a better entry point in MSCI shares.
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