On Wednesday, Goldman Sachs (NYSE:GS) upgraded shares of MSCI Inc . (NYSE: NYSE:MSCI) from Neutral to Buy, increasing the 12-month price target to $723 from the previous $617.
With a market capitalization of $47.92 billion and impressive revenue growth of 16% over the last twelve months, MSCI has demonstrated strong market performance. According to InvestingPro data, the company maintains a "GREAT" financial health score, supported by robust profitability metrics.
The financial firm indicated that the buy-side conditions, responsible for about 80% of MSCI's total revenue, are showing signs of improvement. This shift comes after a period of underperformance, which included fund closures and consolidations, attributed to macroeconomic uncertainty and market volatility.
The analyst noted that these conditions are now stabilizing. MSCI's strong fundamentals are evident in its impressive 82% gross profit margin and consistent dividend growth, having raised dividends for 11 consecutive years.
The stabilization is evident as global fund outflows from active managers have steadied after the third quarter. Specifically, in the United States, active equity funds have begun to see inflows following the election, spurred by rotations related to policy changes.
Furthermore, the rate of new global fund formation has picked up throughout the year and is anticipated to maintain positive momentum into 2025, driven by a diversification of stock returns extending beyond large-cap technology stocks under the current Trump administration.
Goldman Sachs also projects that Environmental, Social, and Governance (ESG) organic revenue growth will pick up pace again in 2025. This prediction is based on increased visibility of ESG in the United States after the election, which may encourage fund managers to adopt strategies that align with the Trump policy environment. Additionally, regulatory support from the Sustainable Finance Disclosure Regulation (SFDR) in the European Union has already led to significant inflows into ESG equity funds.
The firm's positive outlook for MSCI is further supported by an expectation of continued earnings per share (EPS) growth in 2025 and 2026 that is anticipated to surpass the consensus expectations. This, combined with a potential valuation multiple expansion, is seen as providing attractive upside potential for MSCI shares. Trading at a P/E ratio of 40, MSCI commands a premium valuation. InvestingPro subscribers can access detailed valuation metrics and 8 additional ProTips to make more informed investment decisions.
Get access to the comprehensive Pro Research Report, available for MSCI and 1,400+ other top US stocks. Goldman Sachs' analysis suggests a favorable investment environment for MSCI, as the firm anticipates the company to benefit from the improving conditions on the buy-side of the market.
"In other recent news, MSCI Inc. reported robust growth in the third quarter of 2024, with total revenue growing by 16%, adjusted earnings per share up by 12%, and a significant 46% increase in free cash flow. The company also repurchased $199 million worth of shares, bringing the total to $440 million for the year. Record assets under management in ETFs and non-ETF products reached $18.6 billion in ETF cash flows for the quarter.
RBC (TSX:RY) Capital Markets maintained an Outperform rating on MSCI, projecting double-digit growth in the company's subscription sales across its Index, Analytics, and Private Assets segments by 2025. The firm also anticipates high single-digit revenue growth and an expansion of over 50 basis points in the company's margins.
In another recent development, Wolfe Research upgraded MSCI's rating from Peerperform to Outperform. This optimistic outlook is based on anticipated favorable demand in financial services and capital markets, and the potential for another positive year in the markets, which could act as a tailwind for MSCI's Index Asset-Based Fee revenue.
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