Piper Jaffray Sees 22% Upside In IHS Markit

Piper Jaffray’s Peter P. Appert believes the combination of Markit Ltd (NASDAQ: INFO) and IHS Inc. (NYSE: IHS) would create a leading data and analytics company in the financial services, transportation and energy markets.

Appert upgraded the rating on Markit from Neutral to Overweight, while lowering the price target from $123 to $43.

Upside Potential

“Improving margin trends, leverage from aggressive repurchase plans, and acquisition synergies should drive healthy EPS growth over the next several years, creating interesting upside potential in INFO shares,” the analyst mentioned.

Appert believes the stock has 22 percent upside potential.

Related Link: After Meeting With Management, BMO Is Bullish On The IHS-Market Merger

A Combination That Works

The analyst pointed out that both IHS and Markit have leading share of their respective information markets, along with deep customer relationships and high revenue visibility, which is driven primarily by subscription-based revenues with robust customer renewal rates.

“The new entity will have an improved margins thanks to the higher margin profile of the Markit businesses. More importantly, underlying margin trends have been improving at IHS, and with an expected $125 million in cost synergies over the next several years, we think IHS Markit combined margins can easily approach 40 percent over the next several years,” Appert stated.

The analyst believes the management’s target of achieving margin expansion of 100 bps each year is achievable, given the “build-once, sell-many-times” model.

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