MSCI (MSCI) Stock Still Looks Undervalued Despite Its 20% Three Year Gain

MSCI Inc. has delivered a 20.0% gain over the past three years, while the stock most recently closed at US$563.49. With that kind of move and a business built on index licensing, data and analytics, the question is whether the current share price is properly supported by the cash it can generate for shareholders.

• That 20.0% three year return supports the idea that MSCI's future cash flows can justify a meaningfully higher equity value than three years ago.
• Recent rule consultations on markets such as Indonesia and Turkey, along with products like SignalLab and private markets data partnerships, may influence how stable and scalable MSCI's fee streams, and thus its long term cash generation, turn out to be.
• If you'd rather focus on earnings, this one's for you. See why MSCI's 30.2x P/E tells a different valuation story.

The issue now is whether MSCI's current market value lines up with what a Discounted Cash Flow (DCF) view of its future cash streams suggests the business is intrinsically worth.

If you want to test the same question you are asking of MSCI, apply the same cash flow lens across a wider set of companies screened by 35 high quality undervalued stocks

Is MSCI Still Cheap on Cash Flow?

The Discounted Cash Flow (DCF) approach here takes MSCI’s projected free cash generation and asks what those dollars are worth in today’s terms. Latest twelve month free cash flow comes in at about $1.49b, and the model then assumes that cash figure grows rather than shrinks over the coming decade, with a tapering pace that looks more like a mature compounder than an early stage story.

On that cash stream, the DCF output sits modestly above today’s share price of US$563.49. This suggests the market is not giving full credit to the projected free cash flows. The consultation on Indonesia’s potential shift to Standalone market status is a reminder that index rule changes can affect future fee pools, and that kind of risk helps explain why the gap between the DCF view and the quoted price remains only modest. Find out what MSCI could be worth using our Discounted Cash Flow (DCF) estimate.

The MSCI Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the MSCI valuation puzzle leaves off by spelling out which paths for growth, profitability and earnings would need to play out for the stock to look materially stronger or weaker than today’s market price. Each scenario ties its number to a concrete view on how MSCI's expansion, margins and key risks could evolve, giving you a reference point you can return to as fresh information comes through.

On MSCI, community views split between investors who see a high quality compounder on sale and others who think the market already prices in a lot of that story.

Bull case: 26% undervalued

"That creates a very attractive economic model. MSCI can participate in the growth of assets invested against its indexes without having to supply the capital itself…"

Discover why this Narrative puts MSCI at 26% undervalued.

Bear case: 33% overvalued

"The investment thesis rests on three durable pillars: permanent switching costs in the Index segment, secular tailwinds from the continued growth of passive investing and the institutionalization of private markets…"

Explore why this Narrative puts MSCI at 33% overvalued.

Before acting on MSCI's valuation, look at who is steering the ship

Price and cash flows tell only part of the MSCI story, because the people setting priorities, incentives and culture, and how they are rewarded for it, can tilt long term outcomes in ways this article has not explored. See who runs MSCI and how they are paid.

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