Where Will MSCI Stock Be In 1 Year?

Passively managed index funds have increasingly edged out their actively managed counterparts in popularity over the past few years. That puts an enormous amount of power in the hands of those organizations that create and manage stock indices.

S&P Global manages the benchmark S&P 500 and Dow Jones Industrial Average indices, but it’s not the only game in town. MSCI (NYSE: MSCI) is an investment research firm that creates market indices based on its own set of criteria. The MSCI World Index, for example, is a collection of 1,480 mid to large-cap stocks from 23 countries.

As with S&P Global’s indices, there are a host of institutional investors that offer exchange-traded funds (ETFs) and mutual funds that track MSCI’s indices. For instance, iShares offers URTH, an ETF that tracks the MSCI World Index. Just for comparison, URTH returned 16.5% over the past year compared to the S&P 500’s nearly 21%.

MSCI itself is a publicly traded company, but its stock has lagged behind S&P Global’s in that regard as well. In 2021, MSCI shares soared above $660, but the stock hasn’t bounced back from 2022’s lows, and it currently trades over 10% below its highs.

One reason for the sluggish performance is that MSCI missed revenue expectations in 2 of the last 4 quarters. The company closed out 2023 strong, however, with revenues and earnings beats.

So where will MSCI stock be a year from now?

What Made MSCI Stock Drop?

In addition to its Index segment, MSCI earns revenue by providing market data and analytics to institutional investors. For the majority of 2023, the company struggled to meet revenue expectations because the economic climate forced many MSCI clients to cut costs.

In the 4th quarter, however, the company reported revenue of $690 million, which was nearly 20% higher than the same quarter of 2022. It was also 4.15% higher than the analysts expected.

Recurring subscription revenue was up 16.8%, and the company’s Index segment reported double-digit subscription run-rate growth for the 10th year running. MSCI also logged the highest all-time annual retention rate for its Analytics segment.

Net income of $403 million was 87.6% higher than the $215 million the company reported in 2022. Diluted earnings per share came in at $5.07, which was nearly 12% higher than experts predicted. Also, MSCI marginally increased its operating margins from 53.6% last year to 53.7% this year.

After the earnings release at the end of January, MSCI shares shot up over $600. But the stock has dropped back down nearly 5% in just a few short weeks.

Will MSCI Stock Go Back Up?

The data MSCI delivers is critical to the operations of some of the world’s largest financial institutions. That was evidenced by the recent news that MSCI is dropping 66 companies from its China index. That change is expected to accelerate the massive sell-off that has plagued the Chinese market.

The MSCI China Index includes around 85% of the total market cap of Chinese companies that are listed worldwide. The alterations to the index affect all of the funds that track it and will keep the pressure on the embattled Chinese economy.

That news came on the heels of a report that India increased its share in the MSCI Global Index to 18.2%, an all-time high. Chinese stocks, on the other hand, fell from 26.6% of the index last year to 25.4% this year.

That means that more institutional funds will flow out of China and into India, which just underscores MSCI’s powerful position in the global financial industry. That role isn’t likely to change anytime soon. The real question for potential MSCI investors is whether the company can continue to deliver revenue growth as it did in the 4th quarter.

Where Will MSCI Stock Be In 1 Year?

According to 16 analysts, MSCI stock is forecast to rise to $621 per share within 1 year.

Approximately half of the analysts consider the stock a Buy, with one predicting that MSCI will outperform the market. The highest price target is $700 per share, which would represent a 22% gain versus where the stock currently trades.

There are 9 Hold recommendations and one Sell rating on MSCI now. The lowest forecast has the stock dropping 8.5% to $525 over the next 12 months.

Is MSCI Stock Undervalued?

MSCI is an established player in the financial industry, but it has suffered revenue stagnation over the past year. Even after the stock has pulled back, MSCI has a price-to-earnings (P/E) multiple nearing 40.

That will certainly give pause to investors who may wonder if the stock is undervalued. It may be worthwhile to note that the company’s main competitor, S&P Global, has a P/E of 51.6x.

MSCI also offers a dividend, and the quarterly payout to shareholders is $1.59 per share. That’s a 1.11% annual dividend yield, and the company paid out $190.2 million in dividends in the 4th quarter alone.

MSCI still had upwards of $460 million in cash and cash equivalents at the end of the 4th quarter, which was well above the company’s designated threshold of $275 million. MSCI made strides in its share repurchase plan in 2023 but missed its goal by $0.8 billion.

Is MSCI Stock a Buy or Sell?

MSCI is a market research firm that develops stock indices and provides critical analytics to some of the largest institutional investors in the world. The company is firmly established but it has failed to grow revenues to investors’ liking in 2023, and the stock has struggled accordingly.

Given MSCI’s positioning and the budding optimism around global markets in 2024, the company could be set to have a better year in 2024. The 4th quarter earnings release certainly seems to support that assertion.

The concern is whether the company can continue to deliver that growth consistently. MSCI is a solid company and a solid stock, that pays a solid dividend. But solid may not be enough to attract investors who are looking for more dynamic growth.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.