MSCI, a prominent player in the investment research and data arena, has faced a challenging year. While the broader Zacks Computer and Technology sector soared by 39.8% and the Zacks Business – Software Services sector climbed 29.2%, MSCI shares only moved up 6.7% in the past year. This underperformance is attributed to a tighter spending environment, extended sales cycles due to macroeconomic pressures, and growing pricing pressure from free indices offered by competitors like Morningstar.
Despite these hurdles, MSCI benefits from strong demand for its customized and factor index modules, recurring revenue business models, and the increasing adoption of its ESG and Climate solutions within the investment process. The company’s expanding portfolio, particularly its robust ESG and Climate solutions, has been a key driver of growth. A recent partnership with Moody’s further strengthens MSCI’s position in the ESG space. This collaboration will leverage MSCI’s extensive sustainability data and models to bolster Moody’s offerings across banking, insurance, and corporate sectors. Moreover, Moody’s will integrate MSCI’s ESG ratings and content into its solutions, gradually phasing out its own ESG data offerings. The agreement also provides MSCI access to Moody’s Orbis database, enabling expanded ESG coverage for private companies and the development of advanced solutions for the private credit market.
MSCI’s partnership with Microsoft further expands its customer base and is considered a significant positive. The partnership aims to modernize MSCI’s products and drive ESG solutions by leveraging Microsoft’s cloud and AI technologies. In the second quarter of 2024, MSCI achieved 10% organic revenue growth, fueled by strong performance across segments including Analytics, ESG, and Index Investments. The company witnessed particularly strong growth in its ESG and Climate solutions, with an organic run rate growth of 14%. Acquisitions have also played a crucial role in shaping MSCI’s growth trajectory. In April, MSCI completed the acquisition of Foxberry, a London-based index provider, aimed at enhancing custom index production capabilities and providing simulation and back-testing capabilities for institutional investors.
MSCI’s diverse portfolio and strategic acquisitions contribute to its ongoing growth prospects and top-line growth. The Zacks Consensus Estimate for third-quarter 2024 revenues is pegged at $710.74 million, suggesting a 13.64% year-over-year increase. The consensus earnings estimate is currently at $3.75 per share. While MSCI’s growth prospects look positive, the stock is not cheap. Its Value Score of D indicates a stretched valuation at present. The forward 12-month Price/Sales ratio for MSCI stands at 16.16X, higher than its Zacks Business – Software Services industry’s 11.26X, highlighting a stretched valuation. MSCI currently carries a Zacks Rank #3 (Hold), suggesting that investors might want to wait for a more favorable entry point in the stock.
