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SPGI

S&P Global Inc.

$504.75 158B market cap December 25, 2024
S&P Global Inc SPGI BUFFETT / MUNGER / KLARMAN SUMMARY
1 SNAPSHOT
Price$504.75
Market Cap158B
2 BUSINESS

Exceptional oligopoly business with 49% margins, $6B+ FCF, and 52-year dividend streak. Very wide moat with 15-20 year durability. At ~32x adjusted P/E, fairly valued with limited upside. Accumulate on weakness at $420-460.

3 MOAT WIDE

Regulatory moat (SEC NRSRO designation, S&P/Moody's/Fitch control 95%+ of ratings market), network effects in indices ($3.3T ETF AUM tracking S&P DJI indices, 1.1B S&P 500 E-mini contracts traded annually), switching costs (Capital IQ embedded in workflows, 96%+ renewal rates), irreplaceable data assets (160+ years ratings history, Platts benchmarks used in $400B+ commodity contracts).

4 MANAGEMENT
CEO: Martina Cheung

52-year consecutive dividend increases (Dividend Aristocrat). Returns ~90% of FCF to shareholders ($1.2B dividends + $4.3B buybacks in 2025E). IHS Markit integration ($44B merger) exceeded synergy targets ($600M+ cost synergies). Actively deleveraging from 2.0x Net Debt/EBITDA.

5 ECONOMICS
49% Op Margin
49% ROIC
49% ROE
26.7x P/E
6B FCF
50% Debt/EBITDA
6 VALUATION
FCF Yield3%
DCF Range450 - 640

At fair value

7 MUNGER INVERSION
Kill Event Severity P() E[Loss]
Major reform to issuer-pays model HIGH - -
Global debt issuance drought (down 30%+ for 2+ years) MED - -
8 KLARMAN LENS
Downside Case

Major reform to issuer-pays model

Why Market Right

Post-2008 style regulatory reform fundamentally changing issuer-pays model; DOJ previously settled with S&P for $1

Catalysts

Rate cuts driving debt issuance recovery, ESG/private markets secular tailwinds, continued margin expansion toward 50%+, accelerated buybacks from $6B+ FCF; New CEO Martina Cheung execution on strategy continuation

9 VERDICT WAIT
A+ Quality Moderate - 2.0x
Strong Buy$420
Buy$460
Fair Value$640

Strong Buy below 420, Accumulate below 460

10 MACRO RESILIENCE -12
Mild Headwinds Required MoS: 28%
Monetary
-2
Geopolitical
+1
Technology
+2
Demographic
0
Climate
+1
Regulatory
-6
Governance
-2
Market
-6
Key Exposures
  • Valuation Compression -7 40x GAAP P/E for cyclical ratings business. If debt issuance remains depressed and multiple normalizes, 45% downside possible.
  • Regulatory Moat Risk -6 NRSRO designation is a government-granted oligopoly. Issuer-pays model conflict of interest. Reform could revoke regulatory protection.
  • Debt Cycle Exposure -3 Ratings revenue directly tied to debt issuance. Sustained high rates = sustained issuance depression = revenue headwind.

SPGI is trust infrastructure at premium valuation with regulatory risk. The -12 total score reflects valuation compression risk (-7) and regulatory moat vulnerability (-6). The methodology is rigorous but the political foundation is contingent. At 40x GAAP P/E, market assumes regulatory acceptance is permanent. Required MoS of 28% implies waiting for $420-460 range. WAIT for debt issuance recovery or valuation compression.

🧠 ULTRATHINK Deep Philosophical Analysis

SPGI - Ultrathink Analysis

The Real Question

We're not asking "is S&P Global a great business?" The regulatory duopoly, 49% operating margins, and 52-year dividend streak answer that. The real question is: When you own the world's financial infrastructure but trade at 40x GAAP earnings, are you buying irreplaceable assets—or paying infrastructure prices for infrastructure returns?

The market sees S&P Global as either ratings duopoly or data compounder. Neither frame addresses the valuation paradox. The deeper question: If the moat is as wide as it appears—regulatory protection, network effects, data assets—why doesn't the market price it higher? And if 32x adjusted earnings is equilibrium, what does that imply about expected returns?

Hidden Assumptions

Assumption 1: Regulatory moat is permanent. SEC NRSRO designation creates legal oligopoly. The assumption is this protection persists indefinitely. But examine the history: 2008 crisis nearly brought regulatory reform. Rating agency scandals periodically revive reform efforts. The assumption that regulation protects forever ignores that regulation is political, and politics change.

Assumption 2: Issuer-pays model survives scrutiny. Credit rating agencies get paid by the entities they rate. The assumption is that this conflict of interest is tolerable. But every crisis resurrects the question: should rating agencies be utilities? Should investors pay instead of issuers? The assumption that the model persists ignores that conflicts of interest eventually matter.

Assumption 3: Indices compound indefinitely. S&P 500 is THE benchmark. More assets track it, creating network effects. The assumption is this dominance expands forever. But examine the pressure: fee compression in ETFs, active management revival, alternative indices. The assumption that index dominance expands ignores competitive and regulatory pressure.

Assumption 4: IHS Markit integration creates value. $44B acquisition merged data businesses. The assumption is that synergies and cross-selling create value. But examine the debt: $10B+ net debt, and while manageable, it constrains flexibility. The assumption that integration succeeded ignores ongoing execution risk.

The Contrarian View

For the bears to be right, we need to believe:

  1. Debt issuance remains depressed — Sustained high rates reduce rating revenue.

  2. Regulatory reform gains traction — DoJ scrutiny or Congressional action threatens model.

  3. Alternative data disrupts — AI and fintech erode traditional data monopolies.

  4. Multiple compresses — 32x normalizes to 25x as quality premium fades.

The probability of sustained issuance depression? Perhaps 30%. Regulatory reform? 15%. Multiple compression? 40%. Combined bear case is plausible at 6-7% expected loss.

Simplest Thesis

S&P Global rates the world's debt and indexes the world's equity—and charges full price for the privilege.

Why This Opportunity Exists

The opportunity is marginal—quality near fair value.

At $504.75, S&P Global offers ~3% margin of safety to $520-550 fair value:

  1. Expected return inadequate — 6.2% annually versus 10% hurdle rate.

  2. No mispricing — Market correctly values moat, margins, and management.

  3. No forced selling — Stable institutional ownership.

  4. No neglect — Among the most analyzed stocks on earth.

The opportunity exists at $420-460, where regulatory risk and cyclicality are compensated.

What Would Change My Mind

  1. Stock drops 15% to $430 — Price creates margin of safety.

  2. DoJ lawsuit dismissed or settled favorably — Regulatory overhang removed.

  3. Debt issuance surges — Lower rates drive rating revenue acceleration.

  4. New product revenue accelerates — Vitality products exceed expectations.

  5. Special dividend or accelerated buybacks — Cash return improves total return.

Some possible within 12-18 months. Current position is watchlist at $460 and below.

The Soul of This Business

Strip away the ratings, the indices, the data terminals. What is S&P Global at its core?

S&P Global is trust infrastructure. When an investor buys a bond, they trust the rating. When a fund tracks an index, they trust the methodology. When a trader prices a commodity, they trust the benchmark. S&P Global provides the institutional trust that allows trillions of dollars to move with confidence.

The soul is in the methodology. A credit rating is not an opinion—it's a methodology applied consistently over decades. An index is not a list—it's a rules-based system that defines what "the market" means. A price assessment is not a guess—it's a transparent process that sets benchmarks for physical commodities. This methodological rigor creates the trust that financial markets require.

But here's the uncomfortable truth: trust infrastructure is politically vulnerable. When ratings fail (2008), when indices create distortions (passive bubble concerns), when benchmarks are manipulated (LIBOR scandal)—regulators respond. S&P Global's moat depends on regulatory acceptance, and regulatory acceptance is not guaranteed.

At $420, you buy trust infrastructure at prices where political risk is compensated.

At $505, you buy assuming regulatory acceptance is permanent and 32x earnings for a cyclical ratings business is reasonable.

The methodology is rigorous. The political foundation is contingent.

The moat is wide. The margin of safety is not.

Executive Summary

3-Sentence Investment Thesis

S&P Global is a dominant oligopoly player in credit ratings (with Moody's forming an effective duopoly) and holds irreplaceable positions in financial indices (S&P 500), commodity benchmarks (Platts), and financial data. The business enjoys 80% recurring revenue, 49% adjusted operating margins, and has compounded revenue at 11-14% CAGR across divisions over 14 years. Despite premium valuation (~40x GAAP P/E, ~32x adjusted P/E), the durable competitive moats, capital-light model generating $6B+ annual free cash flow, and 52-year dividend growth streak justify a WAIT position for accumulation at lower prices.

Key Metrics Dashboard

Metric Value Assessment
2024 Revenue $14.2B Excellent - 14% growth
Adjusted Operating Margin 49.0% Outstanding
Adjusted EPS 2024 $15.70 +25% YoY
2025 Adj. EPS Guidance $17.00-$17.25 +8-10% growth
Adjusted FCF 2025E ~$6.0B Exceptional
ROIC 15-18% Above WACC
Net Debt/EBITDA 2.0x Manageable
Dividend Yield 0.77% Low but 52 yrs growth
5-Year Price CAGR 14.8% Strong returns

Verdict

WAIT - Exceptional business, premium valuation. Accumulate at weakness.

Entry Level Price Target Discount to Current
Strong Buy $420 -17%
Accumulate $460 -9%
Current $505 -
Fair Value $520-550 +3-9%

Phase 1: Risk Analysis (Inversion)

"Tell me where I'm going to die, so I won't go there." - Charlie Munger

What Could Destroy This Business?

1. Regulatory/Legal Risk - MODERATE-HIGH

The Risk: Credit rating agencies (CRAs) have faced intense regulatory scrutiny since 2008. The "issuer-pays" model creates inherent conflicts of interest that regulators worldwide periodically threaten to reform.

Evidence:

  • Post-2008 regulations (Dodd-Frank, ESMA) increased compliance costs but also raised barriers to entry
  • DOJ settled with S&P for $1.4B in 2015 over mortgage securities ratings
  • Ongoing concerns about CRA independence and rating shopping

Probability × Impact:

  • P(Major regulatory change to issuer-pays): 15% over 10 years
  • Impact if occurs: 25-30% reduction in Ratings margins
  • Expected loss: 4-5% of current value

Mitigating Factors:

  • Duopoly structure actually benefits from regulation (higher barriers)
  • Global regulatory fragmentation makes unified reform difficult
  • Ratings business only 27% of revenue post-IHS Markit merger

2. Debt Issuance Cyclicality - MODERATE

The Risk: Ratings revenue is highly correlated with debt issuance volumes, which are cyclical and sensitive to interest rates.

Evidence:

  • 2022: Ratings revenue dropped 26% as rates rose and issuance collapsed
  • 2024: Ratings revenue +20% as issuance recovered
  • Transaction revenue is 43% of Ratings segment

Probability × Impact:

  • P(Another major issuance drought): 30% over 5 years
  • Impact if occurs: 15-20% drop in consolidated revenue
  • Expected loss: 5-6% of current value

Mitigating Factors:

  • 57% of Ratings is now surveillance/non-transaction (recurring)
  • 80% of total company revenue is recurring
  • Diversification across 5 segments reduces cyclicality

3. Technological Disruption - LOW-MODERATE

The Risk: AI and fintech could disrupt traditional financial data and analytics businesses.

Evidence:

  • Bloomberg, Refinitiv, and startups investing heavily in AI
  • Alternative data sources challenging traditional data monopolies
  • Regulatory acceptance of AI-based credit assessment growing

Probability × Impact:

  • P(Material disruption in 10 years): 20%
  • Impact if occurs: 10-15% erosion of Market Intelligence margins
  • Expected loss: 2-3% of current value

Mitigating Factors:

  • S&P Global investing $200M+ annually in Vitality (new products)
  • Kensho AI acquisition in 2018
  • Network effects and switching costs protect core franchises
  • Regulatory mandates require S&P/Moody's ratings for many transactions

4. Integration Risk (Post-IHS Markit) - LOW

The Risk: The 2022 IHS Markit merger ($44B) created integration challenges.

Evidence:

  • Synergies exceeded targets: achieved $600M+ cost synergies
  • Mobility and Commodity Insights segments performing well
  • Culture integration largely complete

Current Status: Risk largely passed. Integration successful.

5. Key Person / Management Risk - LOW

The Risk: Leadership transition in November 2024 (Martina Cheung became CEO).

Evidence:

  • Douglas Peterson (former CEO) orchestrated successful IHS Markit integration
  • Martina Cheung was COO and has deep institutional knowledge
  • Q4 2024 results under new leadership exceeded guidance

Assessment: Smooth transition with strong bench depth.

Risk Register Summary

Risk Probability Impact Expected Loss Trend
Regulatory change 15% 25% 3.8% Stable
Issuance cyclicality 30% 20% 6.0% Cyclical
Tech disruption 20% 12% 2.4% Increasing
Integration 5% 10% 0.5% Decreasing
Management 10% 5% 0.5% Stable
Total Expected Risk ~13%

Overall Risk Assessment: MODERATE. Risks are manageable and largely priced in. The diversified business model reduces single-point-of-failure risks.

Phase 2: Financial Analysis

Historical Financial Performance

Revenue (14-Year CAGR by Division)

Division 2009 2023 CAGR Assessment
Market Intelligence $880M $4,376M +11% Strong
Ratings $1,537M $3,332M +6% Solid (cyclical)
Commodity Insights $294M $1,946M +14% Excellent
Indices $238M $1,403M +14% Excellent

Total 2024 Revenue: $14.2B (+14% YoY)

Profitability Metrics

Metric 2021 2022 2023 2024
Revenue $8.3B $11.2B $12.5B $14.2B
Adj. Operating Margin 47.4% 44.9% 45.9% 49.0%
GAAP Net Income $3.0B $3.2B $2.6B $3.9B
Adj. Net Income $3.5B $4.0B $4.0B $4.9B
Adj. EPS $14.47 $12.53 $12.60 $15.70
Adj. FCF $3.5B $4.0B $4.1B ~$4.8B

Key Observations:

  1. 2022 margins compressed due to Ratings cyclicality + merger integration
  2. 2023-2024 shows strong margin recovery
  3. Adjusted EPS grew 25% in 2024 - exceptional
  4. Free cash flow conversion consistently excellent (>90% of net income)

ROE Decomposition (DuPont Analysis)

Component 2023 Assessment
Net Profit Margin ~21% (GAAP), ~32% (Adj.) Excellent
Asset Turnover 0.50x Low (asset-light)
Financial Leverage 4.5x Moderate (from merger)
ROE ~45% Outstanding

Note: ROE is elevated due to significant goodwill from IHS Markit acquisition creating lower equity base.

Capital Allocation

Year Dividends Buybacks Total Return % of Adj. FCF
2022 $1.0B $12.0B $13.0B >100%*
2023 $1.1B $3.3B $4.4B 107%
2024E $1.1B $3.3B $4.4B ~90%
2025E $1.2B $4.3B $5.5B ~85%

*Included IHS Markit post-merger return of capital

52 consecutive years of dividend increases - Dividend Aristocrat status.

Balance Sheet Strength

Metric 2023 Assessment
Total Debt $11.5B From merger financing
Cash $1.3B
Net Debt $10.1B
EBITDA $5.2B
Net Debt/EBITDA 2.0x Manageable
Interest Coverage ~17x Excellent
Credit Rating A-/A3 Investment grade

Assessment: Balance sheet carries merger-related debt but is manageable with strong cash generation. Company actively deleveraging.

Valuation Analysis

Current Valuation (Dec 2024)

Metric Value 10Y Average Assessment
P/E (GAAP TTM) 40.9x ~25x Premium
P/E (Adj. TTM) 32.1x ~22x Premium
Fwd P/E (2025 Adj.) 29.5x Above average
EV/EBITDA 28x 18x Premium
P/FCF 33x 22x Premium
Dividend Yield 0.77% 1.0% Below average

DCF Valuation

Assumptions:

  • Risk-free rate: 4.5%
  • Equity risk premium: 5.0%
  • Beta: 1.1
  • WACC: 9.0%
  • Terminal growth: 3.5%

Base Case:

  • 2025 Adj. FCF: $6.0B
  • Years 1-5 FCF CAGR: 8%
  • Years 6-10 FCF CAGR: 5%
  • Terminal FCF: $12.5B
Scenario Terminal Value Intrinsic Value Per Share
Bear (4% growth) $227B $140B $450
Base (8%→5% growth) $294B $171B $550
Bull (10%→6% growth) $353B $198B $640

DCF Fair Value Range: $450 - $640 per share Central Estimate: $520-550 per share

Current price of $505 is approximately fairly valued to slightly undervalued.

Relative Valuation

Peer Fwd P/E EV/EBITDA P/FCF
SPGI 29.5x 28x 33x
Moody's (MCO) 32x 28x 35x
MSCI 40x 32x 38x
FactSet 28x 22x 28x
Average 32x 28x 34x

Assessment: SPGI trades in-line with rating agency peer (MCO) and below MSCI. Valuation is fair relative to comps.

Phase 3: Moat Analysis

Moat Sources

1. Regulatory Moat - VERY STRONG (Ratings)

Description: SEC NRSRO (Nationally Recognized Statistical Rating Organization) designation creates a regulatory oligopoly. Only 10 NRSROs exist globally, but S&P, Moody's, and Fitch control 95%+ of the market.

Evidence:

  • Many regulations require ratings from recognized agencies
  • Basel III/IV uses external ratings for capital calculations
  • Investment mandates often specify "investment grade by S&P/Moody's"
  • Obtaining NRSRO status requires extensive track record

Durability: 20+ years - deeply embedded in global financial architecture

Measurable Impact:

  • 56.5% operating margins in Ratings (vs. 30-35% for typical data businesses)
  • Zero meaningful new entrants in 30+ years

2. Network Effects - STRONG (Indices)

Description: S&P Dow Jones Indices benefits from self-reinforcing network effects. More assets track S&P indices → more liquidity → more assets track.

Evidence:

  • $3.3 trillion in ETF AUM based on S&P DJI indices
  • S&P 500 is THE benchmark for US equities globally
  • SPY, VOO, IVV among world's largest ETFs
  • Derivatives volume: 1.1B S&P 500 E-mini contracts traded annually

Durability: 20+ years - benchmark status is self-perpetuating

Measurable Impact:

  • 68.9% operating margins (highest in company)
  • Asset-linked fees provide durable revenue
  • 14% revenue CAGR over 14 years

3. Switching Costs - STRONG (Market Intelligence, Commodity Insights)

Description: Enterprise data platforms become deeply embedded in customer workflows, creating high switching costs.

Evidence:

  • Capital IQ/S&P Capital IQ Pro integrated into investment workflows
  • Platts price assessments are contractual benchmarks
  • 96%+ renewal rates on subscription products
  • Multi-year contract terms

Durability: 10-15 years - but requires continued investment in product

Measurable Impact:

  • 80% of revenue is recurring
  • Subscription revenue up 6% YoY (steady)

4. Data Assets / Intangible Assets - STRONG

Description: Decades of proprietary data and methodologies create unique, irreplaceable assets.

Evidence:

  • 160+ years of ratings history
  • Platts price assessments used in $400B+ of physical commodity contracts
  • Proprietary benchmarks (S&P 500, GSCI, Platts Dated Brent)
  • $14B in goodwill/intangibles from IHS Markit

Durability: 15-20 years - historical data cannot be replicated

Moat Scorecard

Moat Type Strength Duration Trend
Regulatory 10/10 20+ yrs Stable
Network Effects 9/10 20+ yrs Growing
Switching Costs 8/10 15 yrs Stable
Data/Intangibles 8/10 15 yrs Growing
Overall Moat Very Wide 15-20 yrs Stable

Moat Erosion Test

What could erode this moat?

  1. Regulatory reform of issuer-pays model - Unlikely without major crisis
  2. New benchmark indices gaining traction - Minor erosion possible
  3. AI-based credit assessment acceptance - 10-15 year risk
  4. Alternative data replacing traditional platforms - Ongoing investment required

Assessment: Moat is among the widest in financial services. The combination of regulatory protection, network effects, and data assets creates a nearly impregnable competitive position.

Phase 4: Decision Synthesis

Investment Case Summary

Bull Case:

  1. Dominant oligopoly positions with regulatory moats
  2. 80% recurring revenue with 96%+ retention
  3. 49% operating margins expanding toward 50%+
  4. $6B+ annual FCF growing 8-10% annually
  5. Excellent capital allocation (buybacks + dividends)
  6. Secular tailwinds: ESG, private markets, data/analytics demand

Bear Case:

  1. Premium valuation (~32x adjusted earnings)
  2. Cyclical Ratings exposure to debt issuance
  3. $10B+ net debt from merger
  4. Low dividend yield (0.77%)
  5. Limited upside at current prices

Position Sizing Framework

Given the risk analysis and moat assessment:

Risk/Return Profile Position Size
Conservative 3-4% of portfolio
Moderate 5-6% of portfolio
Aggressive 7-8% of portfolio

Recommended Position: 4-5% at Strong Buy price ($420)

Entry Price Targets

Level Price P/E (2025E) Yield Margin of Safety
Strong Buy $420 24.5x 0.92% 23%
Accumulate $460 26.8x 0.84% 16%
Fair Value $540 31.5x 0.72% 0%
Overvalued $600+ 35x+ <0.65% Negative

Monitoring Metrics & Thresholds

Metric Current Watch Level Action Trigger
Adj. Operating Margin 49.0% <46% Review thesis
Subscription Growth +6% <3% Investigate
Ratings Market Share ~50% <45% Major concern
Net Debt/EBITDA 2.0x >2.5x Review
Dividend Growth 1.1% Freeze Sell signal
AUM Linked to Indices $3.3T <$3.0T Review

Expected Return Analysis

5-Year Return Scenarios (from $505):

Scenario 2029 EPS 2029 P/E 2029 Price CAGR
Bear $20.50 22x $451 -2.2%
Base $24.00 28x $672 5.9%
Bull $28.00 32x $896 12.2%

Probability-Weighted Return:

  • Bear (25%): -2.2%
  • Base (50%): 5.9%
  • Bull (25%): 12.2%
  • Expected Return: 5.4% + 0.8% dividend = 6.2% annually

At current prices, expected returns are below our 10% hurdle rate. Wait for better entry.

Final Verdict

Investment Decision

Element Assessment
Business Quality A+ (Wide moat, dominant positions)
Financial Strength A (Strong FCF, manageable debt)
Management A (Proven capital allocation)
Valuation B- (Premium to intrinsic value)
Overall WAIT

Action Items

  1. Add to watchlist with price alerts at $460, $440, $420
  2. No immediate action at current $505 price
  3. Accumulate aggressively if price reaches $420-440 (major market correction)
  4. Monitor: Q1 2025 earnings (Feb 2025 release) for Ratings trends

Summary

S&P Global is one of the highest-quality businesses in the financial sector, with a wide moat that should persist for decades. The company's dominant positions in credit ratings, indices, and commodity benchmarks generate exceptional economics (49% margins, $6B FCF). However, at ~32x adjusted earnings, the stock is fairly valued to slightly overvalued, offering limited upside and margin of safety. The appropriate strategy is to WAIT for market volatility to provide a better entry point in the $420-460 range, where expected returns would meet our 10%+ hurdle rate.

Appendix: Source Documents

All source documents available in /research/analyses/SPGI/data/:

  • S-P-Global-2024-Annual-Report.pdf
  • S-P-Global-2022-Annual-Report.pdf
  • S-P-Global-2021-Annual-Report.pdf
  • S-P-Global-2020-Annual-Report.pdf
  • S-P-Global-Investor-Fact-Book-2024.pdf (146 pages)
  • S-P-Global-4Q-FY-2024-Earnings-Release.pdf
  • S-P-Global-4Q-FY-2023-Earnings-Release.pdf
  • historical-prices-eodhd.json (5 years daily)
  • dividends.md (5+ years history)

Analysis prepared using Warren Buffett value investing methodology with first-principles thinking.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Past performance does not guarantee future results. Always conduct your own due diligence before making investment decisions.