The capital markets have always been a cutthroat environment. With the growing competition for superior returns, the desire for specialized data and services increases even further. This has highlighted the need for professional services in the industry and a growing economy as these companies provide access to specialized data, analytics, or even niche services that could help underserved communities and industries.
A recent study suggests that the professional services industry is set to grow by 6.3% CAGR by 2028. However, with the financial markets' ever-evolving demands and requirements for data and analytics, there will be tough competition out there. That is why we think that betting on the big names while the market is still recovering can help grow a long-term investor's portfolio.
S&P Global Inc. (SPGI)
S&P Global Inc. is one of the major credit ratings agencies alongside Moody's and Fitch; they are considered the "big three." However, besides its prestige and popularity in the credit market, S&P Global also offers benchmarks, workflow solutions, and analytics to serve the global market in the capital, commodity, and automotive markets. The company also owns the S&P Dow Jones Indices, one of the industry's most followed indices.
SPGI has been constantly growing its revenues and reported a spectacular FY22 with a sale sgrowth of 34.76%. In addition to SPGI's growing revenues, its merger with IHS Markit in February 2022 widened its footprint and deep-industry data capabilities. With a robust and diversified list of products and continuous growth, it is no wonder analysts highly recommend SPGI in its sector.
Analyst Ratings
Analysts rate SPGI as a “Strong Buy” based on 15 Strong buys and 3 Moderate buy recommendations. The mean target price is $453.73, and the high target price is $470.00, an upside of 21.36%.
MSCI Inc. (MSCI)
MSCI Inc. (MSCI) is a professional service provider of tools and solutions in the global investment industry. The company provides data services for indices, analytics, ESG data, climate change data, and other private assets. MSCI’s well-known products include their global equity indices, thematic indices, fixed income indices, and others. To expand its private asset offerings, MSCI also recently completed its acquisition of the remaining stake of Burgiss Group.
MSCI has continuously shown reported momentum in its revenues; it has demonstrated consistent QoQ growth growth in the last four quarters alone. We see this also in its earnings, as EPS has beat estimates and continues to surprise analysts. If we put it all together, we find that MSCI is in one of the best positions to continue the trend.
Analyst Ratings
Analysts rate MSCI as a “Moderate Buy” based on 5 Strong buys, 2 Moderate buys, 4 Holds, 1 Moderate sell, and 1 Strong sell recommendation. The mean target price is $ 564.83, and the high target price is $650.00, an upside of 23.58%.
Moody's Corp (MCO)
Moody's Corporation is an integrated risk assessment company that offers investors services and analytics. MCO’s investors services (Moody's Investors Service) handle its assessment and credit ratings of entities, programs, and facilities for a range of structured financial securities. Their analytics service (Moody's Analytics) offers a variety of products that help financial market participants assess risk, research & insight, data, and information.
MCO had a tough 2022, with its revenue contracting by 12%. However, 2023 has started to show a strong recovery with sales up 8.18% YoY. MCO’s Moody’s Investor Service also received strong demand in the quarter, pushed by the high need for data by institutions looking to refinance or gain high-quality credits. With upcoming changes in capital requirements, this will serve as another catalyst for MCO’s ratings business, which will be one of the company’s reaping the rewards of these changes.
Analyst Ratings
Analysts rate MCO as a “Moderate Buy” based on 7 Strong buys, 1 Moderate buy, and 8 Holds. The mean target for MCO is $ 364.71, and the high target is $420.00, an upside of 23.82%.
Final Thoughts
Professional services have made their mark in being an integral part of significant industry workflows. The growing need for data, analytics, and niche services puts them into a core part of giant industries, like a cogwheel in an interconnected machine, which is why we think that now is the best time to look into the players in this industry before they go into full gear.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
