A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
One such stock is Verisk Analytics, Inc. VRSK, which has gained 34.3% so far this year, outperforming the 28.4% rally of the industry it belongs to and 13.4% rise of the Zacks S&P 500 composite.
It has an expected long-term (three to five years) earnings per share growth rate of 10.1%. Its earnings are expected to register 7.5% growth in 2019 and 10.9% growth in 2020.
However, the company faces its share of headwinds. High debt may limit Verisk’s future expansion and worsen its risk profile. Also, escalating investments for software development to expand growth in organic businesses and recent acquisitions lead to higher capital expenditure. Verisk also remains susceptible to operational risks related to security breaches at facilities, computer networks and databases, resulting in loss of its credibility and/or customers.Despite these headwinds, we believe that the company has enough positives that justify the stock’s retention in investors’ portfolio.
A Look at the Positives
Verisk continues to witness higher organic revenue growth through a combination of increase in new customers for existing solutions, cross-sale of its existing solutions to existing customers and the sale of new solutions. The company continuously seeks to expand its portfolio by leveraging its deep knowledge and embedded position to develop new, proprietary data sets and predictive analytics by working with its customers to understand their evolving needs. In first-quarter 2019, total revenues grew 5.9% organically and 6.7% on an organic constant-currency basis.
Moreover, Verisk continues to earn the major portion of its revenues from subscriptions and long-term agreements. In first-quarter 2019, Verisk’s three reportable segments: Insurance, Energy and Specialized Markets and Financial Services generated a respective 83%, 78% and 75% of revenues from subscriptions and long-term agreements.
Acquisitions have also been one of the key growth catalysts for Verisk. On Mar 29, 2019, Verisk inked a deal with an enterprise application software provider to acquire the latter’s Content as a Service (“CaaS”) business for $69.1 million in cash. The CaaS business (which includes the Environmental Health and Safety Regulatory Content and Environmental Health and Safety Regulatory Documentation teams and data assets) has been included in Verisk’s Energy and Specialized Markets segment.
In 2018, the company acquired four companies — Rulebook on Dec 14, Validus-IVC Limited on Jun 20, Business Insight Limited on Feb 21 and Marketview Limited on Jan 5.
While Rulebook should solidify Verisk's position in the global insurance market, the buyout of Validus will help improve and automate the claims settlement process. The other two acquisitions will help Verisk in its predictive analytics and consumer spending analytics decision making.
Zacks Rank & Stocks to Consider
Verisk currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting NCI, FLEETCOR Technologies FLT and NV5 Global NVEE. While Navigant Consulting sports a Zacks Rank #1, FLEETCOR and NV5 Global carry a Zacks Rank #2 (Buy).
Long-term expected EPS (three to five years) growth rate for Navigant Consulting, FLEETCOR and NV5 Global is 13.5%, 15.4% and 20%, respectively.
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Verisk Analytics, Inc. (VRSK) : Free Stock Analysis Report
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