Will MSCI Q3 Earnings Gain from Higher Asset-Based Fees?

MSCI Inc. MSCI is set to report third-quarter 2018 results on Nov 1.

The company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, delivering an average positive surprise of 5.8%.

In the last reported quarter, MSCI reported adjusted earnings of $1.30 per share, which beat the Zacks Consensus Estimate by couple of cents and surged 36.8% year over year. Operating revenues increased 14.9% year over year to $363 million, much better than the consensus mark of $357 million.

The Zacks Consensus Estimate for third-quarter earnings has remained steady at $1.30 over the past seven days, reflecting year-over-year growth of 30%. The consensus mark for revenues currently stands at $359.1 million, reflecting year-over-year growth of 11.5%.

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

MSCI is benefiting from growth of equity ETF-related revenues, non-ETF passive revenues, and exchange-traded futures and options products. The company is also gaining from strong traction in client segments, like wealth management, and banks and broker dealers.
 

MSCI Inc Price and EPS Surprise

MSCI Inc Price and EPS Surprise | MSCI Inc Quote

 

MSCI is likely to gain from robust demand for multi-product solutions. Moreover, solid anticipated growth in recurring subscriptions, which accounted for 73.4% of total revenues in the last reported quarter, is a key catalyst. Notably, recurring net new sales surged 54.6% year over year to $29.6 million in second-quarter 2018.

Moreover, higher asset-based fees due to strong inflows are likely to drive top-line growth. Notably, assets under management (AUM) in ETFs linked to MSCI indices rose 2.8% sequentially to $765.5 billion at the end of third-quarter 2018 (ended Sep 30). Since MSCI charges fees based on AUM, an increase in AUM bodes well for the company’s top line.

Further, strong demand for Environmental, Social and Governance (ESG) products bodes well for the company. Notably, MSCI has completed integration of ESG in all its risk analytics systems. This is likely to drive demand for the company’s multi-asset class risk and performance analytics solution.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has a good chance of beating estimates. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

MSCI has a Zacks Rank #4 and an Earnings ESP of -0.77%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in the to-be-reported quarter.

Himax Technologies HIMX has an Earnings ESP of +48.15% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp NTAP has an Earnings ESP of +0.83% and a Zacks Rank #1.

HubSpot HUBS has an Earnings ESP of +136.37% and a Zacks Rank #2.

 

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