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FactSet Keeps Riding the Bull

Dan Caplinger, The Motley Fool

A rising stock market lifts many companies, and FactSet Research Systems (NYSE: FDS) is particularly sensitive to the ups and downs of major stock indexes. When markets plunged last December, FactSet felt the pinch, but a nice recovery to start 2019 quelled many fears and stoked new optimism among those following the financial information provider.

Coming into Tuesday's fiscal third-quarter financial report, FactSet shareholders wanted the company to sustain its growth rates in revenue and earnings in order to prove that it could take advantage of the rally as long as it lasts. FactSet's numbers were better than many had expected, and the data provider is working hard to make the most of favorable conditions while preparing for inevitable pullbacks when they come.

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Image source: FactSet Research Systems.

FactSet finds more success

FactSet's fiscal third-quarter results showed progress in building up momentum. Revenue came in at $364.5 million, up 7.2% from year-ago levels. That was better than the 6% growth that most investors were prepared to see. Similarly, adjusted net income jumped almost 20% to $102.1 million, and the resulting $2.62 per share in adjusted earnings came in well ahead of the $2.36-per-share consensus forecast among those following the company.

FactSet pointed to a number of factors supporting its business. Higher sales of analytics, content, and technology solutions helped lift revenue, as did strength in wealth management solutions. Organic revenue growth of 7.3% accelerated from past quarters, and annual subscription value plus professional services rose to $1.45 billion, despite a negative impact from factors like acquisitions and dispositions as well as adverse foreign currency movements.

Among its customers, FactSet got a relatively even contribution from various groups. Sell-side customers had slightly faster growth in annual subscription value, coming in at 6.8% versus the corresponding 5.2% growth for buy-side clients. Domestic growth also slightly outpaced gains in what FactSet brings in internationally by a 5.2% to 4.4% margin. That's consistent with the relative performance of financial markets, where U.S. returns have largely outpaced what investors have seen elsewhere.

Key metrics showed FactSet's strengths. The company brought on 50 new clients to climb above the 5,450 mark, and user counts are now approaching the 123,000 level. Retention as a percentage of total clients came in at 90%, and those staying with FactSet are skewed toward the higher end of the subscription value spectrum.

CEO Phil Snow was pleased with the results. "FactSet's ability to perform well this year amid sector and industry headwinds," Snow said, "serves as a proof point that our long-term strategy is working." The CEO also noted that clients have high demand for the connected data and technology solutions that are on the cutting edge of the industry.

Can FactSet keep growing?

FactSet sees itself finishing the fiscal year on a positive note. As CFO Helen Shan noted, "We are on track to finish the year on a strong note for revenue, margin, and [earnings per share], and our dedication to cost discipline and process improvement continues to yield results." Shan also remarked on the 12.5% dividend boost that shareholders got in their quarterly payout in June.

Those views got reflected in the company's guidance. FactSet narrowed its previous range for revenue to between $1.42 billion and $1.44 billion, which didn't change the midpoint. However, the company now expects adjusted earnings of between $9.80 and $9.90 per share. That's higher by $0.25 to $0.30 per share from its guidance three months ago, and it represents roughly a 15% rise over fiscal 2018 levels.

FactSet shareholders initially seemed pleased with the results, but after a 1% rise near the open, the stock was down between 1% and 2% at midday following the report. Despite the short-term fluctuations in its stock price, though, FactSet looks like it's doing what it can to keep its business moving forward and to ensure that it's positioned well to prosper in whatever environment the markets bring for the future.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.