S&P Global(SPGI) Seeking Alpha·2024-07-22 20:53Core Insights - S&P Global is positioned well within an oligopoly, benefiting from a strong moat in the debt issuance market, which is crucial for economic activity [1] - The company reported a significant increase in transaction revenue, which rose by 33%, while subscription revenue only grew by 2% to 477 million to 679 million, indicating strong performance despite modest subscription growth [2] - S&P Global's revenue for Q1 2024 reached 3.491 billion, exceeding previous records by over 10%, with operating margins expanding by 350 basis points to 39.7% [5] - Free cash flow (FCF) for Q1 2024 was reported at 1.2 billion, and plans to return 85% of its FCF to shareholders through dividends and buybacks [8] Segment Performance - The Ratings segment experienced a 29% year-over-year increase, driven by favorable market conditions for debt issuance, particularly in bank loans and high-risk debt [5][12] - Operating profits across segments showed a 21% increase, with expenses rising only by 4%, highlighting operational efficiency [2] - The company is considering selling its Mobility segment, indicating a strategic focus on core revenue-generating areas [1] Market Outlook - S&P Global raised its FY 2024 guidance, reflecting confidence in continued strong performance, particularly in the Ratings segment [5][8] - The company expects lower levels of issuance in the second half of the year, but anticipates robust activity in Q2, supported by strong issuance trends observed in early 2024 [13] - Historical FCF growth has averaged 13.2% annually over the past decade, with expectations for continued growth in the coming years [14] Valuation - S&P Global is currently trading at a forward P/E of 44, which is considered expensive, but the strong free cash flow generation is a key driver of its valuation [4] - A discounted cash flow analysis suggests a fair value just below $570, indicating a potential upside of 17% [14]