IHS Markit (INFO): Bull Case vs Bear Case - Piper Jaffray
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Piper Jaffray analyst, Peter Appert, highlighted INFO as his favorite large-cap GARP story, with strong near/intermediate-term earnings momentum and visibility providing a compelling risk/reward considering the meaningful valuation discount relative to info services peers.
Bull Case: Improving margin trends (driven importantly by merger cost synergies), leverage from aggressive share purchase plans, and a modestly lower tax rate should drive mid-to-high teens EPS growth in 2017 and 2018. At 18x 2017E adj. EPS, the stock trades at a meaningful discount to info services peers (average P/E 22x), suggesting upside that can be both earnings growth and P/E-expansion driven.
Bear Case: Organic revenue growth in both the Resources (27% of proforma revenues) and Financial Services (34%) are soft, with limited visibility on the timing of a turnaround. Cost synergies and revenue synergies are important components of the story. While both companies have historically enjoyed success in achieving cost synergies, revenue synergies could be difficult to achieve given very diverse product offerings and customer sets. Strong near-term earnings growth is impressive, but it's largely a function of "financial engineering".
Rather than "financial engineering" the analyst prefers to think of INFO's near-term earnings momentum as a function of the company's "self-help" efforts! Importantly, his confidence in the company's ability to deliver on cost synergies is high based on past acquisition integration successes.
Overweight IHS Markit (NASDAQ: INFO) price target of $43.00
Shares of IHS Markit closed at $37.06 yesterday.
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Related EntitiesPiper Jaffray, Earnings, Definitive Agreement, Peter Appert
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