MSCI (MSCI 1.12%), a leading provider of global market indexes, experienced a 13.9% jump in its stock price in June, according to S&P Global Market Intelligence. By comparison, the major U.S. stock market benchmark, the S&P 500, was only up 2.3% last month.
MSCI's stock price is up 21% year to date as of July 6, trading at $542 per share or about 56 times earnings.
MSCI is known primarily for its global indexes, like the broad market MSCI ACWI, the MSCI EAFE, and the MSCI Emerging Markets, to name a few. The indexes are widely used by asset managers for their index and exchange-traded fund products. The company also provides services for institutional investors, like risk management analytics, portfolio construction, research, and more.
Most of its revenue is from subscription and asset-based fees. It has three business lines, indexes, which accounts for about 60% of revenue; analytics, which comprises about 28% of revenue; and environmental, social, and governance (ESG) research and modeling, which makes up about 7% of revenue.
MSCI's stock price surged on a strong first quarter as revenue climbed 15% to $478 million and net income jumped 33% to $197 million. Its asset-based fee income was up 26% while subscription income was up 11%. The biggest revenue gain came from the ESG segment as revenue rose 37%.
With its steady income from subscriptions and fees, and low overhead, MSCI has a high 53% operating margin. With that model, the rise of passive investing, and its moat as one of only a few major index providers, it has been a consistent earnings generator for a long time. MSCI has increased its revenue growth by about 9.5% annually over the past five years, and net income rise by almost 22% per year. Add to that its leadership position in ESG indexing and MSCI is in a great position for continued growth.
As CEO Henry Fernandez said on the first-quarter earnings call: "Put simply, we believe that addressing the impacts of climate change will require the largest reconstruction of the global economy since the industrial revolution. Capital markets are an essential and critical force to drive the transition to a net zero world with considered actions from all participants."