On Wednesday, Deutsche Bank shifted its stance on MSCI Inc . (NYSE:MSCI) stock, upgrading from Hold to Buy, while also adjusting the price target to $569 from the previous $613. The revision reflects a more optimistic outlook on the company's future sales growth, despite a reduction in earnings per share (EPS) estimates for the coming years.
The upgrade comes after a period of caution from Deutsche Bank, due to concerns over valuation and decelerating growth influenced by cyclical market factors, which have affected the financial industry, leading to fund closures and downsizing. However, the analyst anticipates an acceleration in net new sales for MSCI, as the first quarter is typically weaker for new sales and current trends in cancellations appear to be improving.
MSCI management has indicated the recent high level of cancellations, particularly a $7 million impact from Swiss banks' consolidation, was atypical and concentrated within a single quarter. This followed 18 months of warnings regarding elevated pressures from client-related events. The expectation is that retention rates will recover throughout the year, returning to levels consistent with the previous year.
The analyst's forecast includes a modest improvement in cancellations and net new sales, aligned with seasonal patterns, but does not project a significant rebound beyond this. The main risk identified with the upgrade is the potential for a slower than expected recovery in net new sales, which could further depress recurring subscription growth and the company's valuation.
Deutsche Bank has also revised its EPS estimates for MSCI, reducing them by 2% for 2024 and 3% for 2025. These revised estimates remain higher than consensus, but it is expected that market estimates will recalibrate downwards. The new price target of $569 is based on a discounted cash flow (DCF) analysis, assuming a 10% revenue growth and stable margins going forward.
InvestingPro Insights
Turning to real-time data and expert analysis from InvestingPro, MSCI Inc. appears to be navigating a complex market landscape. The company's market capitalization stands at $35.33 billion, and it holds a price-to-earnings (P/E) ratio of 35.17, indicating a premium valuation compared to some industry peers. Despite recent challenges, MSCI's revenue growth remains robust, with a 12.47% increase over the last twelve months as of Q1 2023, and a significant quarterly revenue growth of 19.77% in Q1 2023.
From an operational standpoint, MSCI's gross profit margin is impressive at 82.34%, reflecting the company's ability to maintain profitability amidst market fluctuations. This is further supported by an operating income margin of 54.82%, showcasing efficient management and strong core operations.
InvestingPro Tips highlight that MSCI has maintained its dividend payments for 11 consecutive years, which could be a sign of the company's commitment to shareholder returns. Additionally, analysts predict the company will be profitable this year, which aligns with the healthy gross profit and operating income margins observed. For investors seeking more comprehensive analysis, there are additional InvestingPro Tips available, providing deeper insights into MSCI's financial health and market position.
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