RBC Capital Markets has reaffirmed its bullish stance on London Stock Exchange Group (LSEG) following the company's third-quarter update, arguing that the recent pullback in the shares is overdone. The investment bank kept its “outperform” rating and a 13.60-pound price target, while highlighting what it sees as a solid growth outlook and a potential boost from future share buybacks.
What the update showed
LSEG, which operates the London Stock Exchange and provides financial data, analytics, and trading services, reported its Q3 numbers recently. RBC's note focuses on two key points: revenue growth and cash generation. The bank says LSEG's update supports at least 8% revenue growth guidance for 2026, measured on a constant-currency basis. That means the figure strips out the impact of exchange-rate movements, giving a clearer view of underlying business performance.
Equally important, RBC points to healthy free cash flow—the cash a company generates after paying operating expenses and capital expenditures. Free cash flow is what funds acquisitions, dividends, and share buybacks, so it's a key metric for investors looking at shareholder returns.
The bank also notes that margins at Octus, a financial-data business LSEG acquired, look sturdier than some had feared. Octus provides data and analytics for the credit and leveraged finance markets, and its integration appears to be going well.
Why the dip looks overdone
RBC argues that concerns about “agentic AI”—AI systems that can act autonomously—potentially weakening demand for LSEG's data products are premature. The idea is that AI might reduce the need for human analysts to manually search for data, but RBC believes clients will continue to pay for trusted, hard-to-replace data and analytics. If that holds, LSEG's subscription-style revenue base looks durable.
The bank also flags a cyclical tailwind: when markets are volatile, trading and risk management activity tends to rise. That typically benefits exchange and market-data groups like LSEG, as higher volumes and increased hedging activity drive demand for their services.
Given these factors, RBC lifted its revenue forecasts by 1% for 2026-2028 and raised its adjusted diluted earnings per share (EPS) estimates by 1% “in all years.” The price target remains at 13.60 pounds.
What it means for investors
For everyday investors, the key takeaway is the potential for share buybacks. RBC sees GBP1.0bn-GBP1.5bn of buybacks in 2027 as an extra lever on EPS. Buybacks work by reducing the number of shares outstanding, so each remaining share represents a bigger claim on the same pool of profit. That can mechanically lift EPS even if operating performance doesn't change much, and it can make the stock look cheaper on a forward price-to-earnings basis.
So if LSEG really does have room for that level of repurchases, the company's per-share earnings path becomes more sensitive to capital-return follow-through than to small tweaks in revenue growth. In other words, hitting broker targets like RBC's 13.60-pound price may hinge as much on execution of buybacks as on the next quarter's top-line beat.
It's worth noting that LSEG's shares have been under pressure recently, partly due to broader market concerns about the impact of AI on data providers and partly due to a general risk-off mood in European equities. But RBC's note suggests the market may be overlooking the company's fundamental strengths.
For context, LSEG is a major player in the global financial infrastructure space, competing with the likes of Bloomberg and Refinitiv (now part of the London Stock Exchange Group itself after a 2021 acquisition). Its data and analytics division is the largest revenue contributor, and its trading venues handle a significant share of European equity and bond trading.
The broader backdrop is also relevant. European markets have been volatile, with concerns about economic growth and inflation. As we've seen in eurozone growth cooling, the macro environment is uncertain. But for LSEG, volatility can be a double-edged sword: while it may boost trading volumes, it can also weigh on investor sentiment and valuations.
Investors should also keep an eye on how LSEG's management executes on its capital return plans. The company has a history of returning cash to shareholders, and if it follows through on the 2027 buyback potential, that could provide a meaningful floor under the stock.
As always, it's important to remember that analyst ratings are just one opinion. RBC's outperform rating is a positive signal, but it's not a guarantee. Investors should consider their own financial situation and risk tolerance before making any decisions.
For more on how companies are navigating the current environment, check out our coverage of Jindal Steel's profit beat and Bradesco's earnings. And for a look at how other banks are viewing European stocks, see Berenberg's take on Fresenius.
