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IHS Markit (INFO) Benefits From Buyouts, High Debt Persists

Zacks Equity Research

IHS Markit Ltd.’s INFO shares have gained 6.2% in the past year compared with the 2% rise of the industry it belongs to.

The company recently reported mixed fourth-quarter fiscal 2018 results, with earnings beating the Zacks Consensus Estimate but revenues missing the same. Adjusted earnings per share of 57 cents beat the consensus mark by 2 cents and increased 10% on a year-over-year basis. Total revenues came in at $1.07 billion, missing the consensus mark of $1.08 billion but improving 13% from the year-ago quarter’s tally.

IHS Markit has an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in all of the preceding four quarters with an average of 6.1%. For the first-quarter of fiscal 2019, the consensus mark for earnings moved down 3.4% in the past 30 days.

What’s Driving IHS Markit?

IHS Markit is benefiting from well diversified global customer base and strong brand recognition. The company has a consultative product development approach, which means it works closely with its customers in introducing offerings and enhancing established ones. This, in turn, has helped it build strong customer relations over time.

Currently, IHS Markit’s offerings are well established across multiple industries and geographies. The company intends to continue innovating and developing new product offerings and investing primarily in automotive, energy and financial services.

IHS Markit Ltd. Revenue (TTM)

 

IHS Markit Ltd. Revenue (TTM) | IHS Markit Ltd. Quote

 

IHS Markit made three acquisitions last year — Ipreo, DeriveXperts and PetroChem Wire. While DeriveXperts enhances the company’s derivatives data and valuations products, PetroChem Wire complements its OPIS product offerings. Ipreo is aimed at boosting the Financial services segment.

The company’s products and services are offered primarily through recurring fixed and variable fee agreements, which ensures stable revenues and cash flows. This business model along with operational efficiency and financial discipline are driving margins. In the last reported quarter, adjusted EBITDA margin improved 40 basis points (bps) to 39.1% on a year-over-year basis.

Risks

IHS Markit’s balance sheet is highly leveraged. As of Nov 30, 2018, net long-term debt was $4.9 billion while cash and cash equivalents were $154.4 million. Such a cash position implies that the company needs to generate an adequate amount of operating cash flow to pay off debts. Moreover, high debt may limit expansion and worsen risk profile.

The company’s business experiences event-driven seasonality. In the first quarter, the company witnesses lowest revenue and profit levels. The same improve during events like CERAWeek, an annual energy conference that is held in the second quarter of every year as well as biennial release of the Boiler Pressure Vessel Code (“BPVC”) engineering standard. BPVC generates revenues for the company predominantly in the third quarter of every other year. Seasonality causes fluctuations in revenues and profits, thus making prediction difficult.

Zacks Rank & Stocks to Consider

IHS Markit 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 include Booz Allen Hamilton BAH, Waste Connections WCN and Republic Services RSG, each carrying a Zacks Rank #2 (Buy). Long-term expected earnings per share (three to five years) growth rate for Booz Allen Hamilton, Waste Connections and Republic Services is 14.4%, 11.7% and 10.7%, respectively.

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