MSCI - Embedded Expectations Analysis - 2021 09 29
MSCI Inc. (MSCI:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 54.3x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about product investments, growth opportunities, and their ESG offerings.Specifically, management may be overstating the success of their investments in new product offerings, their positioning to take advantage of growth opportunities, and the pace of the ESG investing trend. In addition, they may be exaggerating their significance to client investment processes, and they may have concerns about the sustainability of the favorable operating environment and the seasonality of real estate revenue. Finally, they may lack confidence in their ability to sustain benchmark wins, generate large sales, and continue investing in the technology sector.
MSCI is a provider of decision support tools and services for the global investment community. The company's segments are: Index, in which Clients use the company's indexes in various areas of the investment process, including index-linked product creation; Analytics, which provides risk management, performance attribution and portfolio management content, applications and services; Environmental, Social and Governance (ESG), which helps institutional investors understand how ESG considerations can impact the long-term risk and reward of their portfolio and individual security-level investments; and Real Estate, which includes research, reporting, market data and benchmarking offerings.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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