AI Driving Revenue For RELX’s Legal Business: Morgan Stanley Weighs In

Relx (LON:REL) shares are under scrutiny as Morgan Stanley analyst George Webb lowered the firm's price target to 3,980 GBp from 4,410 GBp, while maintaining an Overweight rating. The adjustment reflects evolving market dynamics, particularly the impact of GenAI on legal workflows and its implications for key players like Relx and Thomson Reuters (TRI). The analyst highlights that the rapid pace of change in lawyer workflows, fueled by GenAI, is driving revenue acceleration for both companies' legal businesses.

Morgan Stanley identifies two data-related areas of competitive advantage, or “moats,” for Relx and Thomson Reuters within the U.S. legal reference information market. These moats are crucial in sustaining their dominant positions amidst increasing technological disruption. The firm notes a clear preference for Relx over Thomson Reuters at this juncture, assigning an Overweight rating to Relx versus an Equal-weight rating for Thomson Reuters.

Despite the positive influence of GenAI on the legal divisions of both Relx and Thomson Reuters, Morgan Stanley anticipates that ongoing competition debates could hinder near-term valuation multiple expansion. This suggests that while the underlying business fundamentals are improving, market perception and regulatory scrutiny might pose challenges to share price appreciation. The lowered price target reflects this cautious outlook.

The analyst's assessment underscores the transformative role of AI in the legal sector. Relx, with its established presence and data-driven advantages, is well-positioned to capitalize on this trend. However, investors should remain vigilant about potential regulatory hurdles and competitive pressures that could impact the company's valuation.

The Overweight rating suggests that Morgan Stanley believes Relx will outperform its peers in the long run, driven by its strategic focus on AI and data analytics within the legal industry. The firm's analysis points to a fundamental shift in the way legal professionals operate, with technology playing an increasingly vital role. Relx's ability to adapt to and leverage these changes will be critical to its continued success.

The price target reduction of approximately 6.2% reflects a tempered outlook on Relx's near-term valuation, acknowledging the potential headwinds from competition debates. However, the Overweight rating indicates confidence in the company's long-term growth prospects, supported by its strong market position and technological capabilities.