Frontdoor, inc. operates a home services platform that provides home service plans to homeowners in the United States. It provides services under the HSA, OneGuard, Landmark, and American Home Shield brand names. The company serves homeowners who require assistance with technical home repair issues by utilizing its network of pre-qualified professional contractor firms. Frontdoor primarily derives revenue from three channels: existing contract renewals, selling as part of a real estate transactions, and selling direct to consumer (DTC). With 30% and 50% of the real estate and DTC market share, respectively, Frontdoor and its American Home Shield brand is by far the largest player in home warranty market.
MSCI is a high-quality compounder that has near monopoly position in the international index business. It benefits from several secular tailwinds that will provide mid-teens earnings growth for the next decade. MSCI’s market position in ESG research has potential upside as large as the passive investing trend we saw over the last 2 decades. While ESG makes up just 6% of the business today and is overshadowed by a wonderful core index business, it is the fastest growing segment that saw accelerated growth recently. Further, it should generate operating margins somewhere between that of a ratings agency and an index provider (50 – 70+% margin). I believe the market undervalues the earnings power of the MSCI due to ESG segment’s relative size and lower visibility as well as the company’s extremely long-term reinvestment horizon.
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