S&P Global's stock has experienced remarkable growth, rallying by more than 80% over the past five years, and is currently near its all-time high. Investors are closely watching this leading financial services provider, which has demonstrated strong growth momentum amid challenging macroeconomic conditions. To understand if S&P Global's stock price will continue to rise over the next five years, we need to take a closer look at its business model, growth rates, and valuations.
Over the last five years, S&P Global has solidified its position as a leader within the financial analytics sector. The company provides comprehensive financial data, credit ratings, and analytics services to nearly all Fortune 100 companies and approximately 80% of the Fortune 500. With its near-duopoly status, only Moody's stands as its smaller rival. Major financial institutions, universities, and corporations rely on S&P Global’s offerings to gain insights and make informed decisions.
While the company has made significant strides under typical circumstances, it faced headwinds over the past two years. Following significant interest rate increases, many companies issued less debt, leading to slower growth within S&P Global's credit ratings business. This decline was heightened by the company's sale of its Engineering Solutions business in May 2023. Nonetheless, forecasts indicate positive trends as interest rates are expected to decline and stabilize, with net profits projected to rise again post-2023.
For the fiscal year 2024, S&P Global anticipates revenue to grow by 5% to 7% and earnings per share (EPS) growth between 73% to 76% based on Generally Accepted Accounting Principles (GAAP). By excluding one-time expenses and the effects of the previously mentioned divestment, EPS is expected to increase by 35% to 37%. These expected growth rates place the current stock price at $533, which translates to 37 and 31 times the midpoint of this year's GAAP and non-GAAP EPS estimates, respectively.
Looking forward, analysts are optimistic about S&P Global's growth potential. Between 2024 and 2027, they project 7% revenue and 14% GAAP EPS compounded annual growth rate (CAGR). Assuming S&P Global maintains its sector leadership and grows its GAAP EPS steadily at 10% between 2027 and 2031, its stock price could potentially rise to about $931 per share by 2030, representing about 75% growth. Even with more conservative estimations setting the forward price-to-earnings (P/E) ratio at 25, the stock would still reflect upward movement to around $665 per share.
Alongside its growth potential, investors may find S&P Global attractive for its dividend policy. Currently, the company pays only 0.7% as forward yield, but it proudly holds the designation of Dividend King for having increased its payout annually for 51 consecutive years. With only 20% of its free cash flow allocated toward dividends over the past year, S&P Global has ample opportunity to increase its dividend payouts more aggressively moving forward.
While S&P Global paints a promising picture, investors are also re-evaluar the broader stock market dynamics. Recent trends have shown defensive stock sectors, such as healthcare and consumer staples, gaining traction amid increased volatility across the market. This year alone, the healthcare sector of the S&P 500 saw impressive gains, jumping 7.1% compared to the overall S&P 500 index's modest increase of only 1%. This shift signifies new opportunities within non-tech companies, allowing them to receive recognition for contributing significantly to market performance.
Driven by strong consumer demand and investor preference for stability, healthcare, consumer staples, and utility companies are fundamentally reshaping Wall Street. Investors are beginning to pivot toward these traditionally undervalued segments, as shares of defensive stocks reflect greater resilience against economic fluctuations. The trend indicates a preference for stability and consistent performance, qualities often exhibited by established healthcare firms and utility providers.
Given the current economic conditions, the increasing prominence of defensive stocks can influence investment strategies. For investors seeking to hedge against market volatility, now might be the time to focus on balancing portfolios with dependable, long-term securities. The emergence of sectors like healthcare, combined with the metrics supporting S&P Global's performance, creates ample opportunities for thoughtful investors.
Investors must carefully assess their positions and strategies as they look to navigate both S&P Global's growth and the shifting performance of the S&P 500. While S&P Global remains steadfast, it's clear the broader market dynamics will also factor heavily as they make their investment decisions moving forward. The next few years could yield significant returns for those calibrated to the market's prevailing trends and equipped with the appropriate defensive strategies.