Is It Time To Reassess S&P Global (SPGI) After Recent Share Price Weakness
- If you are wondering whether S&P Global at around US$415 per share is offering solid value or asking too much, the answer depends on how you look at its fundamentals and market expectations.
- The stock is down about 3.7% over the last week, 1.7% over the last month, and 19.0% year to date, with a 10.0% decline over the past year. However, the 3 year and 5 year returns sit at 22.4% and 14.5% respectively.
- These mixed returns have come as markets reassess large, established financial names and as investors pay closer attention to how business models hold up through changing rate and credit conditions. While headlines shift quickly, the share price moves you see today still come back to what the market is willing to pay for S&P Global's earnings power and balance sheet.
- On Simply Wall St's valuation checklist, S&P Global scores 3 out of 6. Half of the standard checks currently point to the stock looking undervalued, and the rest suggest a fuller price. This sets up a closer look at P/E, DCF and other methods, as well as a deeper framework for thinking about value that will be outlined at the end of this article.
Find out why S&P Global's -10.0% return over the last year is lagging behind its peers.
Approach 1: S&P Global Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to earn over and above the return that shareholders require, then capitalizes those “excess” profits into an intrinsic value per share.
For S&P Global, the model uses a Book Value of $104.17 per share and a Stable EPS estimate of $21.04 per share, based on weighted future Return on Equity estimates from 5 analysts. The Average Return on Equity sits at 19.77%, while the Stable Book Value is $106.41 per share, based on estimates from 4 analysts. The required Cost of Equity is $8.44 per share, and the Excess Return is calculated at $12.60 per share.
Taking these inputs together, Simply Wall St’s Excess Returns Model arrives at an intrinsic value of about $385.23 per share. Compared with a current share price around $415, this implies the stock is roughly 7.8% above the model’s estimate and therefore screens as slightly expensive rather than clearly cheap.
Result: ABOUT RIGHT
S&P Global is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Approach 2: S&P Global Price vs Earnings
For a profitable company like S&P Global, the P/E ratio is a useful shorthand for what the market is paying for each dollar of current earnings, which is often how investors quickly compare similar businesses.
What counts as a “fair” P/E depends on what investors expect for future earnings growth and how risky those earnings appear. Higher expected growth and lower perceived risk usually justify a higher P/E, while slower growth or higher risk tends to pull a fair P/E lower.
S&P Global currently trades on a P/E of 27.5x. That sits close to the peer average of 27.9x and below the wider Capital Markets industry average of 39.1x. Simply Wall St’s Fair Ratio for S&P Global is 17.4x, which is its proprietary estimate of what a suitable P/E might be after considering factors such as earnings growth, industry, profit margins, company size and risk profile.
This Fair Ratio is more tailored than a simple peer or industry comparison, because it aims to line up the multiple with the company’s own fundamentals rather than relying on broad group averages. With the current P/E of 27.5x above the Fair Ratio of 17.4x, the shares screen as looking expensive on this metric.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your S&P Global Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives step in as your way to attach a clear story about S&P Global to the numbers you care about, by linking what you think will happen to its revenue, earnings, margins and fair value, then comparing that fair value to the current share price. On Simply Wall St, Narratives sit inside the Community page and give you simple tools to plug in your own assumptions or lean on existing ones. When analyst targets for S&P Global range from US$480.0 at the cautious end to US$625.0 at the optimistic end, you can see the story behind each view and decide which one feels closer to your expectations.
Do you think there's more to the story for S&P Global? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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