EUR 850.00 For Business Accounts Only

Morningstar | Our Outlook for IHS Markit Is Intact After Unsurprising Fiscal 2018 Results; Shares Trade Fairly

We are unlikely to make a significant change to our $51 per share valuation for wide-moat IHS Markit after fourth-quarter earnings met our targets. We still expect mid-single-digit organic revenue growth and adjusted EBITDA margin expansion into the mid-40s (from 39% in fiscal 2018) over the next five years.

For fiscal 2018, IHS Markit reported sales of $4.01 billion, adjusted EBITDA of $1.56 billion, and adjusted diluted EPS of $2.29, near our $4.01 billion, $1.56 billion, and $2.26 targets. Management reaffirmed its fiscal 2019 guidance, calling for $4.425 billion to $4.5 billion in revenue and $1.75 billion to $1.78 billion in adjusted EBITDA, consistent with our $4.5 billion and $1.77 billion respective marks.

Growth was broad based, with the resources, transportation, CMS, and financial services units showing 4%, 11%, 2%, and 6% organic revenue expansion, respectively. The transportation segment (nearly 30% of sales) was particularly strong, capitalizing on what we believe is an advantageous balance between the used and new vehicle markets and a comprehensive offering that extends into faster-growing areas like production forecasting, regulatory compliance, and dealership marketing. We also believe IHS Markit's expertise can be monetized in the supply-constrained freight industry, where its new rate forecasting service should be well received considering high, volatile costs. We expect high-single-digit average annual long-term revenue growth for the segment.

The financial services segment (35% of sales) should continue to post strong results, particularly as the 2018 Ipreo acquisition is integrated. With market volatility rising, we believe IHS Markit's diversified exposure should pay dividends, particularly as softness in new issue market activity is offset by increasing trade ticket counts in areas such as derivatives. We continue to expect mid-single-digit annual organic revenue growth for the segment against mid-40s adjusted EBITDA margins long term.