Pershing Square Inc. on S&P Global Inc.
Thesis
Pershing Square believes S&P Global's valuation fails to reflect the strength of its market-leading benchmark businesses, proprietary financial data, and long-term earnings growth potential. Investor concerns regarding AI disruption in Market Intelligence and elevated interest rates affecting credit ratings have weighed on the stock despite strong underlying performance. The fund believes AI-related disruption is limited to a relatively small portion of company earnings and that demand for proprietary, curated, high-quality financial data may actually increase with AI adoption. Pershing Square supports the company's strategic review and potential separation of Capital IQ and related data businesses, which could improve strategic focus and reduce the market's perceived AI risk. Its Ratings division should benefit from AI infrastructure financing, merger and acquisition activity, and substantial upcoming debt maturities, particularly in high-yield credit. The fund expects mid-teens annual earnings growth, supported by high-single-digit revenue growth, operating leverage, and annual share count reductions of approximately 4%. At 20 times earnings, S&P Global is considered attractively valued relative to the quality and growth of its benchmark franchises.
“SPGI trades at 20 times earnings, a low multiple for a company which owns a portfolio of the world’s best benchmark businesses.”
Key risks
- Artificial intelligence could disrupt portions of S&P Global's Market Intelligence and financial data businesses.
- Persistently higher interest rates could constrain debt issuance, refinancing activity, and growth in the Ratings business.
- A potential separation of Capital IQ and related data operations may fail to create the expected benefits or alleviate investor concerns about AI disruption.
- Revenue growth, operating leverage, or the anticipated annual share repurchases may fall short of the assumptions supporting mid-teens EPS growth.