What Is S&P Global’s Fair Value?
In the last year, S&P Global’s stock price has increased by around 40%. Our dashboard series on the company is aimed towards providing a step by step approach to users to estimate S&P Global’s valuation and determine if there is further upside to the stock. The first two dashboards in this series provide some backgrounds and inputs to the valuation dashboard. You can access them here: 1) A Snapshot Of S&P Global’s Business; 2) Estimating Revenue Growth For S&P Global Inc.
S&P Global is a provider of transparent ratings, benchmarks and other data to capital and commodity markets globally. The company’s customers include asset managers, investment and commercial banks, trading firms and capital issuers. It serves its customers via a broad range of products distributed through third party and proprietary distribution channels. In this analysis we explain our approach to estimating the company’s valuation and price estimate.
The first three steps involve estimation of revenues, EBITDA margin and net income of the company for 2018, based on its expected performance in the year. Our base estimates assume that the company will be able to continue its steady recent growth in 2018 and maintain its margins at the levels of the previous year. This assumption is validated by the company’s Q1 2018 results. Our detailed discussion of the company’s revenues, as well as our growth forecasts, can be seen in the previous note on S&P Global’s revenue growth.
You can also create different revenue/margin scenarios to analyze the impact of a significant increase/decrease in these numbers on the company’s valuation. Based on our assumptions of revenue growth and margins for the company for 2018, we expect its diluted EPS to be around $ 8.50 for the year. You can modify our forecasts to come up with your own estimate. The final step is to apply a P/E (price to earnings) multiple on the EPS to calculate a price estimate for S&P Global.
We have used a trailing PE multiple of 29 on the forecast EPS of $8.50 to arrive at a price estimate of $245 for the company. This is around 15% higher than the current market price of around $214.
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