While most financial stocks struggled over the past 12 months, there were a few with durable business models that navigated the volatility without issue. These companies generally do not bear credit risk, such as the stock exchanges. And many provide a necessary service to the markets that lets them earn recurring fee-revenue streams. One such company is S&P Global (NYSE:SPGI), whose steady record of performance has translated to 270% gains for investors over the past five years. Here is how things are looking for the company now.

Picture of a bond rating AAA stable

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Best known for the S&P 500

S&P Global is probably best known as the company behind the benchmark S&P 500 index. It also provides ratings, data, and analytics for the financial and commodity markets. It has four main businesses: ratings, market intelligence, Platts, and indices. The ratings business provides investors with independent credit ratings and analytics on bond issues. If you have heard the terms "investment grade" or "junk bond," this is a bond rating. Market intelligence provides data and analytics for a variety of consumers, especially professional investors and governments. Platts provides pricing and data for commodity markets, while indices includes the ubiquitous S&P stock indices and a whole host of others including ethical, social governance (ESG) indices.

A big merger will complicate future earnings

S&P Global recently announced a merger with IHS Markit (NASDAQ:INFO). This is a stock-for-stock transaction that is expected to close in mid-2021. It is largely a complementary deal, where IHS has expertise in sectors like transportation and natural resources. The reaction from customers has been generally positive, and the stocks of both companies have reacted favorably. That said, the merger has caused S&P Global to suspend buybacks and restrict guidance. This makes analyst estimates for next year somewhat uncertain.

S&P Global recently reported its fourth-quarter and full-year earnings. Full-year 2020 revenue rose 11% to $7.44 billion, while net income rose 10% to $2.34 billion. Diluted earnings per share increased 12% to $9.66, while adjusted diluted earnings per share (which excludes some unusual one-time charges) rose 23% to $11.69. The company also announced a 15% dividend hike to $0.77 per quarter.

The year of new product launches

On the earnings conference call, CEO Douglas L. Peterson dubbed 2020 as "the year of new product launches." Some of these launches include Marketplace, which provides dataset solutions; Riskcasting indices, which uses artificial intelligence to adjust stock and bond weightings in response to market signals; and Kensho Moonshots, which uses quantitative analysis to predict a company's propensity to innovate. Over the past 10 years, we have seen $1.8 trillion of inflows into passive investing investing strategies, while active investing strategies have seen $1.7 billion in outflows. S&P Global continues to come up with new passive products, especially in hot areas like ESG

At Monday's prices, S&P Global was trading at 27 times expected 2021 earnings per share, a little bit above the stock's five-year average. Earnings per share are expected to grow about 6%, but there should be some extra costs in next year's numbers due to merger integration expenses. While S&P Global is a Dividend Aristocrat -- an S&P 500 company that's raised its dividend each of the past 25 years -- its yield is under 1%. That said, S&P Global does plan to reinstate buybacks once the IHS merger is complete, so that will be another source of investor return.

So is S&P Global a buy? I wish it had a lower multiple, but it basically operates in a duopoly in ratings (with Moody's as the other). This is tough business for new entrants to break into, which explains the stock's premium. S&P Global is a steady performer, and is a financial stock with less exposure to credit and, therefore, the economy. More conservative investors might find that appealing. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.