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Verisk (VRSK) Up 4.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
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A month has gone by since the last earnings report for Verisk Analytics (VRSK). Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Verisk due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Verisk Analytics Lags Q4 Earnings Estimates, Beats Revenues

Verisk Analytics' fourth-quarter 2018 earnings missed the Zacks Consensus Estimate, while revenues beat the same.

Adjusted EPS of $1.04 missed the consensus estimate by 2 cents and declined 21.8% on a year-over-year basis. Quarterly revenues of $613.9 million beat the consensus mark by $4 million and improved 7.7% year over year on a reported basis. The figure improved 5.4% year over year on an organic constant-currency (cc) basis.

Segmental Performance

Insurance segment revenues totaled $436.2 million, up 8% year over year on a reported basis and 5% at organic cc.

In the segment, underwriting and rating revenues of $289.9 million rose 7.4% on a reported basis and 6.9% at organic cc. The improvement was primarily driven by strength in the company’s catastrophe modeling services and underwriting solutions. Claims revenues amounted to $146.3 million, which improved 8% on a reported basis and 5% at organic cc. The uptick can be attributed to revenues from repair cost estimating solutions and claims analytics.

As energy business’ end market continues to improve, Energy and Specialized Markets segment revenues amounted to $130.2 million and improved 11.7% on a reported basis and 4.1% at organic cc. The improvement can also be attributed to revenues from environmental health and safety services, weather and climate analytics businesses as well as growth in consulting and research businesses.

Financial Services segment revenues totaled $47.5 million, which slipped 1.8% on a reported basis and 2.8% at organic cc. The downside was primarily caused by headwinds from tough comparisons with prior-year implementation revenues as well as some timing differences.

Operating Results

Adjusted EBITDA of $289.1 million increased 6.1% on a reported basis and 4.2% at organic cc. Adjusted EBITDA margin was 47.8% compared with 48.4% in the prior-year quarter.

Adjusted EBITDA expenses (cost of revenues; selling, general and administrative expenses; investment income and others) increased 9.1% on a reported basis and 6.4% at organic cc. The upside can be attributed to increased salaries and benefits associated with innovation and business growth of remote imagery business. 

Operating income in the fourth quarter was $216.2 million compared with $210.1 million in the prior-year quarter. Operating margin was 35.2% compared with 36.8% in the year-ago quarter.

Balance Sheet and Cash Flow

Verisk exited fourth-quarter 2018 with cash and cash equivalents of $139.5 million compared with $147.6 million in the prior quarter. Long-term debt at the end of the quarter was $2.1 billion compared with $2 billion at the end of the previous quarter.

The company generated $173.4 million of cash from operating activities and spent $76.5 million on Capex. Free cash flow was $96.9 million.

During the quarter, the company repurchased 1.3 million shares for $156 million. It also entered into a $75-million accelerated share repurchase (ASR) agreement. The shares repurchased will be delivered in March 2018. As of Dec 31, 2018, the company had $428 million under its share repurchase authorization.

The company has declared dividend for the first time in its history.  A cash dividend of 25 cents per share is payable on March 29, 2019, to the shareholders of record as of March 15, 2019.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Verisk has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Verisk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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