What happened
MSCI (MSCI 5.03%) saw a 13.8% decline in its stock price in April, according to S&P Global Market Intelligence. MSCI was trading at about $471 per share on May 3, up about 1.3% year to date.
The major market indexes all ticked higher in April, as the S&P 500 climbed 1.5%, the Dow Jones Industrial Average rose 2.5%, and the Nasdaq Composite moved up 0.1% last month.
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So what
MSCI is the company that runs the MSCI family of stock market indexes, as well as provides data and analytics for institutional investors.
The catalyst for the April drop was its first-quarter earnings report, which prompted a couple of analysts to lower their price targets for the stock.
Overall, it was a solid quarter, as MSCI beat analysts' estimates and posted revenue and earnings gains. Revenue was up 5.8% year over year to $592 million, while earnings were up 6.8% to $2.97 per share. Its environmental, social, and governance (ESG) and climate-investing business saw the biggest revenue gains, up 29% in the quarter year over year.
CEO Henry Fernandez said:
MSCI delivered solid first-quarter results in a tough environment, confirming the underlying strengths of our franchise. We posted 13.3% organic recurring subscription revenue growth, as well as our 37th consecutive quarter of double-digit Index recurring subscription run-rate growth, and 67.8% run-rate growth from climate across our product lines.
However, a few analysts lowered the price target for MSCI, including UBS, which cited slower growth in its ESG investing business compared to the previous quarter. The price target was lowered from $611 per share to $570.
But UBS analyst Alex Kramm notes that it is only a short-term concern due to recent headwinds. ESG and climate investing are just in their infancy, and there are major growth opportunities in these areas over the long term.
Now what
MSCI maintained its guidance for operating expenses of $1.09 billion to $1.13 billion, up from $1.041 billion last year. Its forecast for net cash provided by operating activities is $1.145 billion to $1.195 billion, up from $1.095 billion in 2022. The free cash flow was $1.060 billion to $1.120 billion, up from $1.022 billion in 2022.
This is a good stock, with a history of double-digit annual earnings growth and competitive advantages in its market-leading businesses. A concern has been its valuation, but its forward price-to-earnings ratio has dropped to about 35. MSCI has the type of revenue diversity that allows it to outperform in various market cycles, so this is an excellent growth stock to consider.
