On Jun 6, 2014, we issued an updated research report on FactSet Research Systems Inc. (FDS).
FactSet has been witnessing growth in its Annual Subscription Value (:ASV), driven by new client wins. The company added 107 new clients in the last reported quarter (second-quarter 2014) taking the client tally to 2,632. We believe that the growing customer base coupled with high client retention rate (95.0% of ASV) and a competitive pricing strategy will positively impact results in the long term.
The company has also been active on the acquisition front. To expand its customer base, FactSet acquired Revere Data, LLC and Matrix Data. It is worth mentioning that among the 107 new clients added in the last quarter, 32 came from the Matrix acquisition. These strategic acquisitions are aimed at helping FactSet deliver innovative products and evolve as a global financial database company. It will also help FactSet to maximize value for its partners and provide customers with exclusive content sets.
Moreover, the company’s strong balance sheet and cash flow generating abilities enable it to enhance shareholder value though dividends and share buybacks. These shareholder-friendly initiatives not only instill investors’ confidence but also positively impact earnings per share.
However, FactSet operates in a very competitive segment dominated by the likes of Bloomberg L.P., Dow Jones & Company Inc. and Thomson Reuters with significantly greater financial, technical and marketing resources. This leads to aggressive pricing and thus, could result in market share loss for FactSet.
Despite the several positives associated with acquisitions, integrating newly acquired businesses is a distraction for management and consumes financial and other resources. The company has previously faced integration issues with respect to its acquisitions and this could continue in the future as well, given the number of acquisitions. Also, the Revere and Matrix acquisitions are expected to impact operating margins by 70 basis points in the upcoming quarter.
Currently, FactSet has a Zacks Rank #3 (Hold). Investors may consider other better-ranked stock like Micron Technology (MU), Juniper Networks (JNPR) and SanDisk Corp. (SNDK). While Micron sports a Zacks Rank #1 (Strong Buy), Juniper and SanDisk have a Zacks Rank #2 (Buy).