Technology

Why Is S&P Global (SPGI) Up 1.3% Since Last Earnings Report?

It has been about a month since the last earnings report for S&P Global (SPGI). Shares have added about 1.3% in that time frame, underperforming the S&P 500.

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

S&P Global Surpasses Q2 Earnings & Revenue Estimates

S&P Global reported better-than-expected second-quarter 2020 results.

Adjusted earnings per share of $3.40 beat the consensus mark by 23.2% and improved 40% year over year on the back of revenue growth in S&P Global Ratings and reduced expenses from COVID-19-related management actions. Revenues of $1.94 billion beat the consensus estimate by 7.6% and improved 14% year over year.

Segmental Revenues

Ratings revenues of $1 billion increased 26% year over year owing to solid global investment-grade issuance, including record quarterly U.S. investment-grade issuance. Transaction revenues increased 48% to $624 million owing to an increase in global bond issuance, partially offset by decreased bank loan rating activity. Non-transaction revenues grew 1% to $382 million. Market Intelligence revenues were up 6% year over year to $516 million, primarily driven by growth in Data Management Solutions, Credit Risk Solutions, and Desktop and the inclusion of 451 Research.

Platts revenues rose 2% to $217 million, backed by growth in both core subscription business and Global Trading Services. S&P Dow Jones Indices revenues increased 2% to $240 million, driven by 20% growth in exchange-traded derivative fees and 6% increase in data and custom subscriptions.

Operating Results

Adjusted operating profit margin improved 740 basis points (bps) to 58.7%, owing to revenue growth in S&P Global Ratings and reduced expenses from coronavirus-related management actions. Segment wise, Ratings adjusted operating profit increased 47% to $695 million. Adjusted operating profit margin improved 1,020 bps to 69.1%. Market Intelligence adjusted operating profit improved 13% to $177 million. Adjusted operating profit margin improved 220 bps to 34.4%. Platts’ adjusted operating profit increased 9% to $127 million and adjusted operating profit margin increased 400 bps to 58.3%. S&P Dow Jones adjusted operating profit increased 5% to $172 million. Adjusted operating profit margin improved 210 bps to 71.9%.

Balance Sheet and Cash Flow

S&P Global exited second-quarter 2020 with cash, cash equivalents, and restricted cash of $2.68 billion compared with $1.95 billion at the end of the prior quarter. The company generated $937 million of cash from operating activities in the reported quarter. Free cash flow was $889 million. During the reported quarter, the company did not repurchase any new shares. Its existing ASR program was in place and it was completed on Jul 27. The company paid $162 million in dividends. 

2020 Guidance

S&P Global raised its full-year adjusted EPS guidance in the range of $10.75-$10.95 from the prior guidance of $9.95-$10.15.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, S&P Global has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions looks promising. Notably, S&P Global has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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