Pat is the founder of Dorsey Asset Management, former director of research at Sanibel Captiva Trust, and former Director of Equity Research at Morningstar, where he developed Morningstar’s economic moat ratings and methodology for analyzing competitive advantage. He is also the author of two books – The Five Rules for Successful Stock Investing and The Little Book that Builds Wealth.
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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