FactSet (FDS) Up 4.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for FactSet Research (FDS). Shares have added about 4.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is FactSet due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

FactSet Beats Earnings and Revenue Estimates in Q1

FactSet Research Systems Inc. posted impressive first-quarter fiscal 2019, with earnings and revenues beating the Zacks Consensus Estimate.

Adjusted earnings per share (EPS) of $2.35 beat the consensus mark by 7 cents and increased 15.2% on a year-over-year basis. The upside was driven by higher revenues and a lower effective tax rate due to the U.S. Tax Cuts and Jobs Act (TCJA).

Revenues in Detail

Revenues of $351.6 million surpassed the consensus mark by $2 million and increased 6.8% year over year. Organic revenues grew 6.4% to $353.1 million. The improvement was primarily driven by higher sales of wealth management as well as content and technology solutions (CTS). Region-wise, U.S. revenues climbed 6.4% to $222.2 million and international revenues improved 7.5% to $129.4 million.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (ASV) plus professional services was $1.42 billion at the end of the quarter, up 6% year over year. Organically, it increased 6.6% year over year. Buy-side and sell-side ASV growth rates were 5.9% and 8.6%, respectively. Of this, nearly 83.9% was generated by buy-side clients and the rest were derived from sell-side firms performing functions like mergers and acquisitions advisory work, capital markets services as well as equity research.

ASV generated from the United States was $876.9 million, up 6.3% from the prior-year quarter’s level on a reported basis and 6.3% organically. Internationally, ASV was $521.3 million, up 5.3% year over year on a reported basis and 6.4% organically. FactSet added 155 clients in the reported quarter, taking the total number of clients to 5,279. Annual client retention was 91% of clients and more than 95% of ASV. At the end of the quarter, total employee count was 9,600, up 1.9% year over year.

Operating Results

Adjusted operating income came in at $111.3 million, up 5.8% from the year-ago quarter’s tally. Adjusted operating margin declined 20 basis points (bps) to 31.5%. Selling, general and administration expenses increased 7.4% to $88.3 million. Total operating expenses increased 4.6% to $251.1 million.

Balance Sheet and Cash Flow

FactSet exited first-quarter fiscal 2019 with cash and cash equivalents of $170.4 million compared with $208.62 million in the previous quarter. Long-term debt at the end of the quarter was $574.8 million, flat from the prior-quarter’s tally. In the quarter, the company generated $46.3 million of cash from operating activities and spent $9.5 million in Capex. Free cash flow was $36.8 million compared with $55.2 million at the end of the previous quarter.

Share Repurchase and Dividend Payout

FactSet repurchased 275,000 shares for $60.4 million during the reported quarter. The company still has $181.3 million under existing share repurchase program. A regular dividend of $24.2 million or $0.64 per share was scheduled to be paid on Dec 18 to common stockholders of record as of Nov 30, 2018.

Fiscal 2019 Outlook

FactSet reiterated fiscal 2019 guidance. The company anticipates adjusted EPS in the range of $9.45-$9.65. Revenues are expected between $1.41 billion and $1.45 billion. Organic ASV plus professional services for fiscal 2019 is projected in the range of $75-$90 million. Adjusted operating margin is projected in the range of 31.5-32.5%. The annual effective tax rate is expected between 17.5% and 18.5%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, FactSet has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

FactSet has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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