Daniel
RT @MnkeDaniel: A one-page summary of Thinking, Fast and Slow with an Investing Focus:

(Bookmark for later; Like and Share if you find it helpful) https://t.co/diVrA4655T
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Dimitry Nakhla | Babylon Capital®
A sober valuation analysis on $MSCI 🧘🏽‍♂️

•NTM P/E Ratio: 29.33x
•10-Year Mean: 34.93x

•NTM FCF Yield: 3.64%
•10-Year Mean: 3.37%

As you can see, $MSCI appears to be trading below fair value

Going forward, investors can receive ~19% MORE in earnings per share & ~9% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $MSCI is a good business

BALANCE SHEET🆗
•Cash & Short-Term Inv: $519.31M
•Long-Term Debt: $4.50B

$MSCI has an ok balance sheet, a BBB- S&P Credit Rating, & 6.80x FFO Interest Coverate

RETURN ON CAPITAL✅
•2019: 23.4%
•2020: 28.6%
•2021: 26.5%
•2022: 33.0%
•2023: 35.2%

RETURN ON EQUITY🆗
•2019: (463.5%)
•2020: (231.5%)
•2021: (239.3%)
•2022: (148.6%)
•2023: (131.4%)

*ROE negative due to heavy use of debt

$MSCI has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $913.36M
•2023: $2,528.92M
•CAGR: 10.72%

FREE CASH FLOW✅
•2013: $280.93M
•2023: $1,213.27M
•CAGR: 15.75%

NORMALIZED EPS✅
•2013: $2.16
•2023: $13.52
•CAGR: 20.13%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 121.07M
•LTM Shares Outstanding: 79.60M

By reducing its shares outstanding 34.2%, $MSCI increased its EPS by 51.9% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 82.2%
•LTM Operating Margins: 53.9%
•LTM Net Income Margins: 44.6%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~19% MORE in EPS & ~9% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $MSCI has to grow earnings at an 14.67% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be less than the (14.67%) required growth rate:

2024E: $14.84 (9.8% YoY) *FY Dec
2025E: $17.07 (15.0% YoY)
2026E: $19.39 (13.6% YoY)

$MSCI has a great track record of meeting analyst estimates ~2 years out, but let’s assume $MSCI ends 2026 with $19.39 in EPS & see its CAGR potential assuming different multiples

32x P/E: $620.48💵 … ~14.6% CAGR

31x P/E: $601.09💵 … ~13.2% CAGR

30x P/E: $581.70💵 … ~11.9% CAGR

29x P/E: $562.31💵 … ~10.5% CAGR

28x P/E: $542.92💵 … ~9.1% CAGR

As you can see, $MSCI appears to have double-digit return potential if we assume >29x earnings, a level of fundamental support (first green line in P/E chart) & a level below its 10-year average multiple of 34.93x

Given its wide moat, exemplary capital allocation, & linearity in its EPS & FCF, I believe 29x is fair for $MSCI & leaves us with some margin of safety

Today at $446💵 my research leads me to believe that $MSCI is a worthwhile consideration for investment

Knowing that $MSCI could trade down a bit more (closer to 25x as you’ll see in second green line in P/E chart) I would piece into the position

In other words, if I wanted to allocate 5% to $MSCI, I’d likely look to initiate a 3% - 3.5% allocation & leave room to add more & make it 5% if we see $MSCI trade between $380💵 - $400💵

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲.
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Giuliano
The study plan for microeconomics has been designed.

I'll most likely get into it after Newton's Principia Mathematica.
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 Q-Cap 
Mauboussin argues that typical valuation methods like P/E and EV/EBITDA are getting worst at reflecting the real economic picture of a company due to the rise of intangible assets on balance sheets.

The Microsoft example is really shocking. https://t.co/BY3AXUwfhN
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The Long Investor
RT @DeItaone: HONG KONG BITCOIN AND ETHER ETFS TO START TRADING APRIL 30
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The Long Investor
$SPY 50 Day MA is at $510 right now so there is still more room for this relief bounce as $META, $MSFT and $GOOG report today and tomorrow.

A rejection at this level and I expect another leg down

$SPY I have gone through every correction since 1993 and only once has the $SPY not retested the 50 Day MA from below before rejecting further down.

This happened in 2020 due Covid and the abrupt decline.

I suspect earnings will help retest the 50 Day MA but a rejection here and the correction is confirmed. - The Long Investor
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Giuliano
Astonishingly curious move.

Historic move for customers & the #construction industry: the @NemetschekGroup & @Autodesk agree on joint #interoperability announcement, including key software solutions from both companies, enabling a silo-free ecosystem & end-to-end workkflows.

More | https://t.co/EG5j1npRvN https://t.co/0F1aLwsh3P - mediarelations@nemetschek.com
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The Long Investor
There is always a third option:

- Do nothing and wait.
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The Long Investor
$TSLA analysts targets range from

$147 to $234

Yeah, thanks for that clarity.

$TSLA: Citi Raises target price to $182 from $180

$TSLA: UBS Cuts target price to $147 from $160
$TSLA: Canaccord Genuity Cuts target price to $222 from $234
$TSLA: Truist Securities Cuts target price to $162 from $176
$TSLA: Mizuho Cuts target price to $180 from $195 - *Walter Bloomberg
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Daniel
Michael Mauboussin just wrote a phenomenal paper on multiples and their role in valuing companies.

The paper is 15 pages long.

Let me give you an introduction by breaking it down for you:

The paper discusses 4 topics:

1. What Multiples Miss
2. The Two Most Popular Multiples
3. Alternative Measures of Earnings
4. EV/EBITDA Deep Dive

1. What Multiples Miss

1.1 Main Problem:

Multiples tell us nothing about the returns of a company.
And if the returns are insufficient (below or at the cost of capital), growing earnings are irrelevant.

- Return above Cost of Capital -> Higher growth leads to higher value

- Return at Cost of Capital -> Higher Growth has no impact

- Return below Cost of Capital -> Higher growth leads to negative value

1.2 Shift to Intangibles

In recent decades, we've seen a shift to intangible assets.

This shift has a material impact on the significance of multiples.

In contrast to tangible assets, intangible assets are often accounted for in SG&A and R&D expenses. Thus, they reduce earnings.

The differences are significant and adjusted for this accounting difference; companies would partially report up to 50% more EBIT or EBITDA.

Because of this, multiples are getting worse at reflecting the economic picture they are supposed to capture.

2. The Two Most Popular Multiples

Price to earnings (P/E) and Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA) are the most used multiples.

And while they mostly correlate, there are some factors that cause them to differentiate.

3. Alternative Measures of Earnings

Companies have to report under GAAP regulation (or IFRS for companies outside the US).

But many companies also report non-GAAP numbers. These are adjusted by:

Overall, research has shown that companies report non-GAAP earnings to give investors a more realistic picture of their operations rather than making the company look more profitable than it is.
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