MSCI (MSCI) is a quality business at a discount, with the recent stock pullback already pricing in an “unlikely worst-case scenario” and the company is likely to see upside support from buybacks, BofA Securities said in a note Tuesday.
BofA said it expects multiple expansions as investors are likely to be attracted to a high-quality long-term growth story at a discount.
The company’s shares derated after it reported heavy Q1 cancellations, which management “indicated was a one-off event and bad timing,” the note said.
“We think the business is in better shape than valuation reflects, although slowing ESG sales and weak near-term Index subscription growth will cap upside,” BofA said, adding it expects $425 million of buybacks this year “with room for upside.”
“At a 7% discount to peers, MSCI shares are likely to attract incremental investor interest, in our view,” the note said. “MSCI is a double-digits EPS compounder that benefits from cyclical tailwinds [shift to passive investing], deep competitive moat [a top 3 Index provider], strong brand recognition, sticky customer relationships, and high recurring revenues.”
BofA upgraded MSCI to neutral from underperform and raised the price target to $525 from $425.