Is it still a buy?

S&P Global (NYSE:SPGI) has been one of the most stable and reliable stocks on the market over the past 15 years. It’s had another solid year in 2023, with the stock up about 33%, and the year is off to another good start, up about 5% so far.

But while S&P Global still posted solid year-over-year gains, it declined Thursday after reporting fourth-quarter results that fell short of expectations. The rating agency also expected slower year-over-year revenue growth and its revenue guidance was below consensus estimates.

Let’s take a closer look to see if S&P Global remains a solid buy.

As steady as they come

S&P Global is best known for its index, the S&P 500, but it is much more than that. The company’s two biggest revenue generators are its credit ratings and market intelligence businesses.

S&P Global’s Credit Ratings business is a market leader, one of only a few in an extremely difficult-to-enter sector, and its Market Intelligence division is also one of the market leaders. It also has a niche data and analytics business for the commodities and mobility or transportation sectors, formerly known as Platt’s.

These different business lines, which have protective moats (credit ratings and indices), not only generate different revenue streams but also tend to perform differently in different markets. Market intelligence and data businesses tend to perform well in slowing or slowing growth markets, while indices and credit ratings perform better in good markets.

These factors and its outstanding brand have made S&P Global one of the most trusted stocks on the market. The only year with negative returns since 2008 was 2022, with a decline of 28%. We have achieved positive full-year returns every two years, demonstrating our ability to navigate all market conditions.

Over the past 10 years as of February 7, S&P Global has returned an average of 19.1% per year. Going back 15 years to 2009, the company returned 21.4% on an annualized basis, outperforming its own S&P 500 index, which returned 12.4% on an annualized basis over the same period.

Another strength of S&P Global is its business model. The majority of its revenue is subscription and commission-based, creating a steady cash flow. Additionally, with its relatively asset-light business focused on data, the company generates high margins and plenty of free cash flow, including an operating margin of approximately 38%.

As a result, these factors give S&P Global one of the most reliable dividends. It is considered a dividend king by increasing annual dividends for 50 consecutive years. There are only a few dozen companies on the market that can boast this.

What will happen next?

To recap, S&P Global beat revenue estimates but slightly missed earnings forecasts in the fourth quarter. But the company posted solid profits in the quarter, with revenue up 7% year-over-year to $3.15 billion and net income up 34% to $579 million, or $1.83 per share.

Total sales for the year rose 12% to $12.5 billion. However, on an adjusted basis excluding the Engineering Solutions business that was sold during the year, S&P Global’s revenue increased 8% year-over-year. The company’s earnings per share fell 19% to $8.23 this year, but that was due to gains on asset sales from sales in 2022. S&P Global’s 2023 adjusted EPS is $12.60, up 13% from the previous year.

The company’s shares fell Thursday morning, down about 6% in early trading, most likely due to its 2024 outlook. S&P Global called for revenue growth in the range of 5.5% to 7.5% on both a GAAP and adjusted basis, slightly lower than last year.

It also targeted EPS of $10.70 to $10.95, up about 30% from 2023, and adjusted earnings of $13.75 to $14 per share, up about 9%. However, this guidance fell short of analysts’ consensus adjusted EPS estimate of $14.45.

A weaker-than-expected outlook is not too worrisome, but we should monitor the company’s valuation. S&P Global may be trading a bit hot at around 60 times earnings. This is approximately double the number at the end of 2022.

S&P Global is a great long-term stock, but given its value, I’d be cautious about jumping in right now as it could experience continued near-term volatility.