Index Provider MSCI Is Finally Cheap Enough to Buy, Says Analyst

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The market’s 2022 downturn might seem like a funny time to invest in a market-linked business such as

MSCI
,
but a Raymond James analyst says it’s a rare chance to buy into the savvy, fast-growing provider of indexes and stock ratings.

MSCI

(ticker: MSCI) stock has sunk nearly 10% since the company reported earnings last week, and the drop prompted analyst Patrick O’Shaughnessy to upgrade the stock to a Buy.

O’Shaughnessy admits in his recent note that he missed MSCI’s 20-fold run in the past decade, which took it to a $665 peak last fall, and a 60-times multiple of forward earnings that had kept the analyst on the sidelines with a rating of Market Perform. Last week’s slide has brought the stock to a current price around $420, however, and 35-times next-12-month’s earnings.

The analyst sees this as a good opportunity to get into a business he’s always admired. So on Thursday, he upgraded MSCI to Outperform, with a price target of $515.

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“MSCI boasts a highly recurring revenue model and pricing power as well as exposure to several key secular growth drivers,” O’Shaughnessy writes. “We believe the company will continue to generate double-digit organic revenuegrowth paired with margin expansion.”

O’Shaughnessy projects revenue of $2.3 billion in 2022, rising to $2.5 billion in 2023. Earnings of $11.53 a share in 2022 (excluding noncash charges) could rise to $13.20. The index firm has competed well, he says, against rivals as various as the

London Stock Exchange Group

(LSEG.UK) ,

S&P Global

(SPGI), and Moody’s (MCO).

Subscriptions to MSCI’s indexes bring in over a third of the New York-based firm’s revenue, and most of the index revenue is market-weighted. So a market decline could lead to earnings-forecast revisions, the analyst warns. But MSCI has kept growing its index franchise at a steady annual rate of nearly 10%, says O’Shaughnessy, by raising prices and adding customers and global products. It will chug through a market downturn.

MSCI leads its industry in providing corporate ratings for ESG—environmental, social, and corporate governance. In the March 2022 quarter, the segment surpassed a $350 million annual run rate, up from $250 million in the year-earlier quarter.

“MSCI is clearly the market leader in an ESG space that shows no signs of slowing down,” says the analyst.

Write to Bill Alpert at [email protected]