FactSet Research Systems Inc.’s FDS top line is benefitting from higher organic growth and increase in annual subscription value.
The company’s shares have gained 3% in the past year against 0.9% decline of its industry.
It has an expected long-term (three to five years) earnings per share growth rate of 10.2%. Moreover, earnings are expected to register 11.4% growth in fiscal 2019 and 10.9% in fiscal 2020.
However, the company faces its share of headwinds. High debt laden balance sheet may limit its future expansion and worsen its risk profile. International presence exposes the company to foreign currency exchange rate fluctuations. In spite of these headwinds, we believe that the company has enough positives that justify the stock’s retention in investors’ portfolio.
Factors Driving FactSet
Solid Organic Growth
FactSet continues to grow organically on the back of strong wealth management as well as content and technology solutions (CTS) businesses. While revenues from the United States are benefiting from higher cross-selling to existing and new clients, international revenues are driven by analytics and CTS.
Organic revenues grew 6.4% in the first quarter of fiscal 2019. United States grew more than 6% and international revenues increased 7%.
Higher Annual Subscription Value
Over the years, FactSet has made several acquisitions including BISAM, IDMS, Portware LLC, Code Red, Revere Data LLC and StreetAccount. Buyouts have increased international Annual Subscription Value (ASV) contribution to the company’s total ASV.
In first-quarter fiscal 2019, FactSet’s ASV plus professional services of $1.42 billion increased 6% year over year and 6.6% organically. ASV remains in good shape in the United States and International.
We are impressed with FactSet’s consistent efforts of rewarding its shareholders in the form of share repurchases and dividend payments. FactSet repurchased shares worth $303.9 million in fiscal 2018, $260.9 million in fiscal 2017 and $356.8 million in fiscal 2016. Additionally, the company paid $89.4 million in dividends in fiscal 2018, $80.9 million in fiscal 2017 and $74.2 million in fiscal 2016. Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business.
Zacks Rank & Stocks to Consider
FactSet 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 Republic Services RSG, Waste Connections WCN and Navigant Consulting NCI, each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Republic Services, Waste Connections and Navigant is 10.7%, 11.7% and 13.5%, respectively.
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