SPGI is undervalued; core segments justify price, making recent drop a buying opportunity.

Shares of S&P Global, symbol SPGI, have just hit a 52-week low. Over the past year, the stock has fallen by about 20%, and if we look at its performance since the beginning of the year, it has fallen by about 26%.

Over the past five years, this stock has delivered negative returns . Revenue per share at S&P Global has grown every year, and is also very stable, which usually justifies a premium in valuation.

We can see that earnings per share have also grown significantly over the past five years, along with free cash flow per share.

This means that the valuation multiple has decreased, and for S&P Global, it has certainly decreased significantly. They are now trading essentially at their lowest valuation multiple in the past five years.

For reference, at multiple points over the past five years, this stock has been trading at more than 30 times earnings. The average was about 28.5 times. Currently, they are much closer to the market average, at around 20.9 times earnings.

Sometimes this may be justified if the stock is expected to grow its earnings at a much slower rate in the near future. Is this the case for S& P Global? What we'll see here is the average earnings per share estimates from analysts for the next few years, and you can see that the forecasts are actually quite strong.

Even with the expected decline in earnings growth by 2030, the projected compound annual growth rate is approximately 11%. The expected compound annual growth rate for earnings per share is 11%.

This is roughly in line with what we have seen over the past few years . Profit growth was very strong, coupled with the fact that the company has very stable revenues. Go here and take a look at revenue growth over the past decade.

Yes, the growth was exceptional , but no less important for many investors was the predictability of future cash flows, which were remarkably stable . There are no ups and downs .

So, having said all that, is S&P Global a great opportunity to buy a stock that has long been considered high-quality in dividend growth at a discounted price compared to its historical valuation?

Now, with S&P Global, we can see that the initial yield is now only 1%. Yes, this is a low-yield company, but just to put that in perspective, historical yields have typically been at a much lower level .

So, there is definitely a higher return as a result of this lower valuation.

However, historically, their dividends have grown at a very strong rate, with a 10-year compound annual growth rate of 10.39 %. Overall, dividend growth has slowed, especially in the last few years, but this is a result of some changes we are seeing internally at the company, which we will talk about in a moment.

But ultimately, their free cash flow growth was strong, meaning that if they chose to, dividends could continue to grow at a high rate because they use only about 21% of their free cash flow to pay dividends.

If you follow their news, you know that they recently spun off their Mobility division .

One of the reasons we realized that S&P Global's decision to spin off the mobility division made perfect sense was that it was essentially a lower-quality sector for the company as a whole.

We can see that revenues are much lower, margins are much lower, and overall business growth has been much lower for this sector. Therefore, the general consensus was that this sector was overburdening the rating multiplier that S&P Global deserved.

In fact, at the time of the split, the stock was performing very well. It has increased by a relatively large percentage. But we have now seen in the last month alone that the stock has fallen by more than 10%. What's going on?

Well, one of the headlines that scared off many financial data providers was OpenAI's launch of ChatGPT for financial services. So why did trading in S &P shares decline? Honestly, I think this is a simple mistake by the market.

OpenAI still relies on financial data providers. For example, with Anthropic and Cloud, S &P can distribute data across the same AI tools. She already has a deal with "Claude".

Selling the stock in such a large amount completely ignores what the overall business model looks like. For example, we still have the basic ratings platforms, market intelligence, indices, and energy.

The primary classifications are considered the largest business sector by a considerable margin . They assess the creditworthiness of borrowers, and companies and governments pay S&P to evaluate their debts.

Now, why is this so important right now ? Well, because debt issuances up to 2026 from this year are extremely high and insanely so . This is due to the building of artificial intelligence infrastructure . It continued to rise.

Then we have the indices sector. It is perhaps one of the most stable revenue drivers in the entire S&P 500 index. It actually creates benchmarks like the S&P 500 index itself.

Essentially, it receives licensing fees from exchange-traded funds, investment products, and derivatives linked to its indices . This is why this sector enjoys very high profit margins.

As for the energy sector , it provides commodity price assessments and standard benchmarks. So, the market intelligence sector is really the part of the business that's under scrutiny here with OpenAI's announcement .

Yes, it provides financial data, research, and analytical software, but it also includes "Capital IQ Pro". Shares of S&P Global rose on a report that it is considering spinning off Capital IQ Pro.

It is still in its early stages even as an option under consideration, but this is interesting .

Capital IQ is a research platform used for corporate financial data, valuation testing tools , transaction information, and even valuation data. It also links research to Excel models and includes artificial intelligence tools such as ChatIQ and Document Intelligence.

So, this is what we need to understand. This is not the entire market intelligence sector , but it is a part of the market intelligence sector. They are not separating this sector entirely.

So, this is the interesting part. Once again , S&P Global is simply looking to retain the highest quality parts of its business model . Again, it is still too early to know what will actually happen with Capital IQ, but we see the same logic they used with the navigation section.

What's interesting about this news is, yes, the stock continued to decline, but look at the analysts' average target price now at around $522, which means a potential upside of about 34 or even 35% from current prices.

Thus, with this news and the separation of the navigation section now, we can run an updated evaluation model for the sum of the parts. And that's exactly what I did. Essentially, we are looking at the components of ratings, indices, energy, and market intelligence in action.

Now, you can see where most of the growth is coming from; it's coming from the rankings and the indicators. As I mentioned, these are two great sectors for business. This is the essence of what S&P Global truly stands for.

Rapid growth , highly predictable cash flows , and amazing profit margins. This is why these business sectors deserve a higher valuation multiple .

Okay, take a look at some of the inputs we used. You can see when we look at companies like Moody's, and when we look at companies like MSCI, we can see the kind of valuation multiples that are actually being traded with those business segments, and then we apply something similar to S &P Global.

So, it is a type of comparative evaluation analysis along with the sum of the parts. We are looking at how stocks similar in structure are valued compared to S& P Global.

Therefore, even if we apply a much lower valuation multiple to these slower- growing business segments, we can still determine the value of each segment per share. The ratings business sector alone is valued at approximately $276.

The indicators are approaching $100. Adding them together, we arrive at approximately $376. These two sectors alone put the price very close to the current market price of the stock .

So, even if the energy sector is trading at a much lower valuation multiple, it still adds about $78 in value per share. And the market information sector , even with a much lower valuation multiple again, adds about $107.

When we add these values together, we arrive at approximately $562. When net debt is subtracted, we arrive at a value of $525 per share.

Now, here's what's interesting about this. I ran this pattern and it reached $525, which is almost identical to what we are seeing as the average target price of analysts right now.

As just an example, let's go ahead and run another evaluation. We will keep this assessment simple and look at the sensitivity analysis. Again, let's assume that it will grow in earnings by approximately 10.7% in the future, and I do n't want to assume a large expansion in multiples despite it trading at its lowest valuation multiple in the past five years.

I don't want to be overly optimistic. So, even if the price-to-earnings ratio remains very close to its current level, you can see that the compound returns are starting to look really attractive.

The profits have started to do the bulk of the work, and you can add about 1% to each of these results given that the yield is now 1%. Therefore, even if the valuation multiple continues to decline slightly, future returns still outperform historical market averages.

Certainly, there is still a lot of unknown regarding S&P Global. I mean, the news we saw recently in the last month is still fresh, and we're still in the very early stages of thinking about something like this, but from a risk-versus-reward perspective, S&P Global has certainly become more attractive.

In all transparency, as always, this is a stock that I currently hold in my personal portfolio , and it was one of the losing stocks this year. You can see that I am currently down approximately 19.8% in this position.

Therefore, it is a stock I am watching closely. I still think it's a very high-quality stock. In particular, the two main business segments, namely the ratings and indices sectors, remain outstanding by all measures.

These two sectors alone are roughly equivalent to the current market value of the stock. Therefore, I like the company from a risk-to-reward perspective, and I certainly think it is interesting at current prices.