S&P Global: The Expectation Gap After a Slight Miss

The market had priced in a clean quarter. Instead, S&P Global delivered a slight miss that widened the expectation gap. For the fourth quarter, the company reported EPS of $4.30, falling just short of the $4.32 forecast by 0.46%. Revenue, at $3.92 billion, was the brighter spot, slightly beating the $3.90 billion expectation. On the surface, it was a mixed print. But in the game of expectations, the whisper number for EPS was the critical benchmark, and the miss was enough to trigger a classic "sell the news" reaction.

The stock's immediate pre-market plunge of nearly 15% is the clearest signal of that reality check. That violent move suggests investors saw the EPS shortfall not as a rounding error, but as a potential crack in the earnings momentum that had been priced in. The guidance reset for 2026, which calls for 9-10% EPS growth, now faces a new layer of uncertainty after this quarter's performance.

This creates a tension with the full-year picture. For 2025, S&P Global did hit the high end of its guidance, with full-year adjusted diluted EPS reaching the higher end of guidance and growing 14%. The company also returned a massive 113% of its adjusted free cash flow to shareholders. Yet the quarter's slight miss introduces a question mark for the forward path. The guidance assumes a smooth ramp, but the market is now pricing in a more cautious view, waiting to see if the company can close the gap between its stated strategy and quarterly execution.

The Market's Pricing: What Was Priced In for 2026?

Management's forward guidance for 2026 is a classic case of meeting the minimum expectations while offering no catalyst. The company maintained its focus on organic revenue growth and margin expansion, which is the baseline for a stable stock. But it provided no specific EPS or revenue targets for the year, only a range for adjusted diluted EPS of $19.40 to $19.65. This is a neutral-to-slightly-negative signal. It lacks the "beat and raise" catalyst that investors often look for after a quarter where the whisper number was missed.

The outlook includes a forecast for modestly increasing Billed Issuance, with revenue growth expected to fluctuate by quarter due to challenging prior-year comparisons. This is a realistic acknowledgment of headwinds, but it also means there's no clear path to a surprise. The market had priced in a smooth execution of the AI and private markets strategy. The guidance reset now forces a test: it must justify the current valuation, which implies high expectations for future execution.

The bottom line is that the guidance does not close the expectation gap opened by the fourth-quarter miss. It sets a floor, not a ceiling. For the stock to rally from here, management will need to deliver quarterly results that consistently beat the midpoint of its own range and provide clearer signals of margin expansion ahead of schedule. Until then, the market will likely remain cautious, waiting to see if the stated strategy can translate into better-than-expected reality.

Valuation and the Arbitrage: Is the Drop Justified?

The market's violent reaction has pushed the stock price down sharply, but the valuation still implies high expectations. As of early February, S&P Global trades at a forward P/E of 22.28. That's a premium to its own historical average, which has typically hovered around the low teens. In other words, the market is still pricing in a future of strong growth and execution, even after the recent stumble. The arbitrage opportunity hinges on whether this drop is an overreaction to a minor miss or a rational reassessment of the guidance reset.

Analyst views reflect this tension. The recent initiation by Bank of America with a $575 price target and a "buy" rating points to a bullish view, implying a 40% upside from the post-earnings price. Yet that optimism is the outlier. In early February, several other firms cut their targets, with Mizuho lowering its view to $551 and Stifel dropping its target to $489. This mixed feedback captures the core uncertainty: the company's long-term strategy remains intact, but the near-term path is now clouded by the quarterly miss and the lack of specific 2026 targets.

The key question is the expectation gap. The stock's premium valuation was built on the assumption of smooth, high-single-digit EPS growth and consistent margin expansion. The fourth-quarter EPS miss, however slight, introduces doubt. The guidance for 2026-focused on margin expansion and modestly increasing Billed Issuance-does not provide the catalyst to justify that premium. For the arbitrage to work, the market must have over-penalized the stock. The company still delivered strong full-year results and returned massive cash to shareholders. If it can now execute its 2026 plan, hitting the midpoint of its EPS range and delivering on margin expansion, the current price may represent a buying opportunity. But if the guidance reset signals a genuine slowdown in growth, the valuation premium will have been fully justified. The stock's path from here will be determined by which reality closes the gap.

Catalysts and Risks: What to Watch for the Next Reversal

The expectation gap is now a waiting game. The primary catalyst for a reversal will be the next earnings report, where management must provide clearer 2026 guidance to justify the current valuation and close the gap opened by the fourth-quarter miss. The stock's premium forward P/E implies high confidence in execution. For that to hold, the company needs to deliver quarterly results that consistently beat the midpoint of its own adjusted diluted EPS range of $19.40 to $19.65 and provide tangible proof of the promised margin expansion.

Investors should watch for sequential trends in two key areas: Billed Issuance and operating margins. The guidance calls for modestly increasing Billed Issuance, with revenue growth expected to fluctuate by quarter. The first quarter of 2026 will be critical to see if this forecast is realistic and sustainable. Similarly, the company has guided for margin expansion of 50-75 basis points on an organic constant currency basis. Early signs of this expansion in the coming quarters will be a positive signal that the AI and private markets strategy is translating into profitability.

The key risk is persistent softness in core end markets. The bear case highlights anticipated challenges in the ratings business, with management forecasting a sequential slowdown in issuance. More broadly, there is concern over continued erosion across key end markets such as financial services and automotive. If these headwinds pressure the ratings and market intelligence segments, it could confirm the bearish view and pressure the company's ability to hit its margin expansion targets. Execution risks from the IHS Markit acquisition also remain a watchpoint.

The bottom line is that the stock's path hinges on near-term reality catching up to the stated strategy. The next earnings report is the first major test. If management can show the "modest increase" in Billed Issuance is more than just a forecast and deliver on margin expansion, it could begin to close the expectation gap. If the softness in end markets proves more severe, the guidance reset may look like a conservative pre-emptive strike, and the stock could face further pressure.