Why IHS Markit Stock Has Doubled Since 2016

November 7th, 2019 by Trefis Team
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IHS Markit

Information services company IHS Markit  (NASDAQ:INFO) has seen its stock price rise from about $35 at the end of November 2016 to over $68 currently, implying a return of around 95% over the last 3 years. In this analysis, we break down some of the key factors driving the price increase.

View our interactive dashboard analysis on Why IHS Markit’s Stock Has Doubled Over The Last 3 Years

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We break down the change in IHS Markit’s stock into 4 factors:

IHS Markit’s Stock Price = (Revenue x Margins / No. of Shares) x P/E Multiple

Between FY’16 and FY’19 (FY ends November):

  • IHS Markit’s revenues are projected to increase by close to 63%.
  • Margins are likely to rise 13.6%, expanding from about 21% to 24%.
  • P/E ratio is projected to expand by 37%
  • Share count will rise by 29%.

1. IHS Markit’s Revenues Have Grown From $2.7 Billion in 2016 To $4 Billion in 2018, And We Expect It To Stand At $4.5 Billion in 2019

  • IHS Markit’s Revenue grew from around $2.7 billion in 2016 to about $3.6 billion in 2017, driven primarily by the growth of the Financial Services vertical post the merger between IHS and Markit Ltd, which closed in July 2016.
  • We expect revenues to grow to $4.5 billion by 2019, driven partly by the 2018 acquisition of Ipreo.

How IHS’s Key Segment Revenues Have Trended:

  • Financial services revenues have expanded from $0.4 billion in 2016 to $1.4 billion in 2018, driven by the 2016 merger with financial data provider Markit.
  • We expect Financial Services Revenues to grow to about $1.7 billion by 2019, driven partly by the 2018 deal to buy Ipreo.
  • Transportation revenues have expanded from $0.9 billion in 2016 to $1.2 billion in 2018, driven by the automotive product offerings. We expect revenues to grow to about $1.3 billion in 2019.
  • We expect Energy & Chemicals Revenues to come in at about $920 million in 2019, with Product Design an other revenues remaining roughly flat at $550 million.

2. Net Income Margins Have Risen From 20.8% In 2016 To 23.3% In 2018

  • IHS Markit’s Adjusted Net Income margins have risen from 20.8% in 2016 to 23.3% in 2018, driven by a higher mix of financial services revenues. We expect margins to stand at 23.7% in 2019

A Look At The Key Components Of IHS Markit’s Margins:

  • IHS Markit’s gross margins have expanded slightly from 62.1% in 2016 to about 62.7% in 2018
  • IHS Markit’s SG&A expenses as % of Revenues have trended lower, from 33%in 2016 to about 30% in 2018, likely due to better cost synergies post the 2016 merger.
  • D&A as % of Revenue has increased marginally from 12.3% to 13.5% between 2016 and 2018.

3. Share Repurchases And Growing Net Income Drive EPS Higher

  • The share count saw a significant increase in 2017, as IHS acquired Markit in an all-stock deal.
  • However, the company has been carrying out share purchases since 2017, enabling its EPS to rise from $1.80 per share in 2016 to about $2.29 in 2018.

4. IHS Markit’s P/E Ratio Has Expanded From 19.4x To 23.3x Between 2016 and 2018, And Stands At 26.5x Currently

For more details on IHS Markit’s P/E Ratio, view our interactive dashboard analysis.

 

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