MSCI Inc. has delivered solid multi year gains for shareholders, and with the stock last closing at US$661.53 the real question is whether that price still lines up with the cash the business can generate. With the focus on its cash flows, investors are asking if the current valuation reflects what the underlying franchise can reasonably produce over time.
- Over the past 3 years the share price return of 31.3% puts real weight on whether the underlying cash generation matches the step up in investor expectations.
- Recent plans to expand the use of MSCI indexes in areas such as Brazil related derivatives may support expectations for future index linked fees and the timing of cash inflows tied to its benchmarks.
- If you'd rather focus on earnings, this one's for you. See why MSCI's 34.2x P/E tells a different valuation story.
The issue now is whether MSCI's current share price is justified by its cash flows when measured against a Discounted Cash Flow (DCF) view of intrinsic value.
If you want to test the same cash flow question that MSCI faces across a wider field, compare it with companies in the 32 high quality undervalued stocks
Where Does MSCI Sit on Cash Flow?
The Discounted Cash Flow (DCF) model here focuses on the cash MSCI can return to shareholders over time. On the latest figures, the business generated trailing twelve month free cash flow of about $1.47b, and analysts supplying the model expect that pool of cash to keep growing rather than shrinking.
The long term projections build in rising annual free cash flow through the next decade, followed by a slower second stage as MSCI matures. This helps explain why the current traded price of US$661.53 comes out broadly in line with the modelled intrinsic value. The planned expansion of MSCI indexes into Brazil linked derivatives gives some context for those sustained cash flow assumptions, because it points to more index linked fee potential even if the share price already reflects that optimism. Find out what MSCI could be worth using our Discounted Cash Flow (DCF) estimate.
The MSCI Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for MSCI pick up where the DCF puzzle leaves off and explain what would need to happen to MSCI's growth, margins and earnings for the stock to be worth meaningfully more or less than where it trades today, based on scenarios shared on the Community page. Rather than relying on a single valuation label, each narrative sets out the key assumptions behind its view so you can compare those expectations with MSCI's reported numbers over time.
MSCI attracts sharply different views right now, with one camp seeing a high quality compounder on sale and another arguing expectations already look stretched.
Bull case: 13% undervalued
According to Jobeda, an investor in the Simply Wall St Community, the appeal of MSCI starts with the way its business gets paid.
"Much of the revenue is subscription or recurring in nature, and that gives MSCI considerably more predictable economics than a traditional financial company…"
Discover why this Narrative puts MSCI at 13% undervalued.
Bear case: 57% overvalued
Esteban, a Simply Wall St Community investor who wrote the Narrative, focuses on how much future execution is already implied in the MSCI share price.
"The investment thesis rests on three durable pillars: permanent switching costs in the Index segment, secular tailwinds from the continued growth of passive investing, and the institutionalization of private markets…"
Explore why this Narrative puts MSCI at 57% overvalued.
For MSCI, the share price is only one piece of the decision
The cash flow story for MSCI matters, but the people steering the business and how their pay is structured can shape what happens next for shareholders. See who runs MSCI and how they are paid.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com