Is Another 30% Decline For IHS Markit’s Stock On The Cards?

Despite a 23% decline in IHS Markit’s (NYSE: INFO) stock since the beginning of this year, at the current price of $58 per share, we believe IHS Markit has a significant downside. The key is the company’s stock is still about 30% higher than it was at the beginning of 2018, a little over two years ago. Our dashboard What Factors Drove 29.4% Change In IHS Markit Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Some of the stock price gains over the last two years are justified by the roughly 22.6% growth seen in IHS Markit’s revenues from 2017 to 2019, the effect of which was partially mitigated by a 1.7% reduction in net income margin (which decreased from 11.6% in 2017 to 11.4% in 2019). Taken together, this helped net income increase by 20.6% from $417 million in 2017 to $503 million in 2019. Earnings growth, on a per-share basis, was a bit higher 21.2% due to a slight decrease in the share count.

Finally, IHS Markit’s P/E ratio grew from about 43x at the end of 2017 to 60x at the end of 2019. While IHS Markit’s P/E is down to about 46x now, given the volatility of the current situation, there is a significant potential downside for IHS Markit’s multiple when compared to levels seen in the past years – P/E of 43x at the end of 2017, and 35x as recently as in late 2018.

How Is Coronavirus Impacting IHS Markit’s Stock??

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely impact the company’s revenues across all operating segments, particularly transportation and resource segments. The economic slowdown is likely to reduce expenses by companies across industries globally – considerably hurting the demand for the company’s offerings. The transportation segment, in particular, will also be impacted as the shutdown is adversely affecting the global automobile market. In its Q1 earnings (ending February), IHS Markit provided a scenario-based outlook for FY’20 and FY’21 to incorporate the impact of COVID-19 and plummeting oil prices. In the worst-case scenario, the company expects the economic recovery to begin as late as 2021.  If there isn’t clear evidence of containment of the virus in the coming months, the impact on IHS Markit’s business could be higher than anticipated. As a result, we believe the stock could see its P/E decline from the current level of 46x to 43x, which, combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $45.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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