MSCI MSCI shares gained 16.1% in the past year compared with the broader Zacks Computer and Technology sector’s return of 33.3% and the Zacks Business - Software Services sector’s rise of 34.6%.

The underperformance is likely to have been caused by a tighter spending environment and longer sales cycles due to challenging macroeconomic conditions.

Increasing pricing pressure is also a major concern, primarily due to the growing availability of free indices from providers like Morningstar MORN.

MSCI has also underperformed from MORN, which increased 25.5% in the year-to-date period.

As Morningstar continues to offer more accessible options, self-indexing and lower spending by asset managers on gathering data are other headwinds.

Despite these challenges, MSCI is benefiting from strong demand for custom and factor index modules, recurring revenue business models and the growing adoption of its ESG and Climate solutions in the investment process.

Strong Product Portfolio Aids MSCI’s Customer Base

MSCI’s expanding portfolio, along with robust adoption of its Climate and ESG solutions, have been a major growth driver.

In third-quarter 2024, MSCI achieved 11.1% organic revenue growth, driven by strong performance across various segments, including Analytics, ESG and Index Investments. The company witnessed growth in its ESG and Climate solutions, with organic run rate growth of 11%.

In July, the company announced a partnership with Moody’s MCO, marking a milestone in advancing ESG (Environmental, Social and Governance) transparency in financial markets.

In July, MSCI and Moody’s announced a strategic partnership to enhance ESG and sustainability transparency, combining MSCI’s ESG data with Moody’s Orbis database and credit scoring models.

MSCI’s partnership with Microsoft MSFT has further expanded its clientele and is considered a major positive for the company.

The partnership with Microsoft aims to enhance the global investment industry by leveraging Microsoft’s cloud and AI technologies to modernize MSCI’s products and drive ESG solutions.

Expanding Portfolio Aids Prospects

MSCI saw positive momentum in its private capital solutions, with 17% growth in run rate in the third quarter of 2024, driven by new client relationships and an expanding product portfolio like MSCI Private Capital Fund Indices.

This growth is further supported by MSCI’s launch of the MSCI Private Capital Indexes in July. These indexes cover over $11 trillion in private capital funds across 130 sectors, including private equity, credit, real estate, infrastructure, and natural resources. 

The introduction of these indexes aims to enhance investment decisions in global private markets, bolstering MSCI’s strong momentum and positioning in the private capital space.

MSCI’s Earnings Estimates Show Upward Movement

MSCI’s diverse portfolio and expanding clientele are contributing to its growth prospects continuously and driving top-line growth.

The Zacks Consensus Estimate for fourth-quarter 2024 revenues is currently pegged at $744.57 million, suggesting 7.89% growth year over year.

The consensus mark for earnings is currently pegged at $3.95 per share, which increased 1.2% in the past 30 days. The figure calls for a year-over-year increase of 7.34%

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

MSCI Shares are Overvalued

Despite a diverse portfolio and expanding clientele, tighter spending and rising competition are expected to hurt MSCI’s financial performance.

MSCI stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.

The forward 12-month Price/Sales ratio for MSCI stands at 15.35X, higher than its Zacks Business - Software Services industry’s 11.68X, reflecting a stretched valuation.

MSCI currently carries Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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