Morgan Stanley Says Markit Is 'Getting Enough Credit,' Upgrades To Equal-weight

• The share price of Markit Ltd MRKT has appreciated 15.4 percent over the past six months, from a low of $25.62 on May 7.
• Morgan Stanley’s Toni Kaplan has downgraded the rating on the company from Overweight to Equal-weight, while maintaining a price target of $31.
• Although Kaplan believes that the company’s business model continues to be attractive, the appreciation in the share price over the past year has led to the stock’s risk/reward being less favorably skewed.

Analyst Toni Kaplan explained that while the company was well positioned to “benefit from increased regulation and cost-cutting within the financial services industry,” the stock is now trading in line with the peer group average, “despite limited EPS growth prospects over the next few years.”

Kaplan expects Markit to benefit from the trend in fixed income toward passive management, since the company is a “the provider of the indices underlying two of the five largest US bond ETFs.”

Strong growth in iBoxx linked ETF AUM could lead to upside to the estimates, according to the Morgan Stanley report.

In addition, “KYC.com, Know Your Third Party, and Enterprise Data Management should prosper as financial institutions look to reduce cost, manage big data, and meet regulatory compliance requirements,” the report said, which would drive organic growth for the Solutions business.

Kaplan expects Markit to report its 3Q EPS marginally ahead of the consensus. “In 4Q15, we move up CoreOne given the Oct 1 close, include a $45M charge from a swaps settlement, and $500M of new debt,” Kaplan added.