Verisk's (VRSK) Debt Woes Stay Amid Focus on Growth Strategies
Verisk Analytics, Inc. VRSK has a prudent growth strategy in place, focused on both organic and inorganic growth. However, a debt-laden balance sheet remains a concern for the company.
Verisk recently reported fourth-quarter 2020 results, with adjusted earnings per share of $1.27 missing the Zacks Consensus Estimate by 3.1% but rising 12.4% on a year-over-year basis. Revenues of $713.3 million missed the consensus estimate by 0.5% but increased 5.4% year over year.
The company’s shares have declined 8.1% over the past six months against 3.9% rally of the industry it belongs to.
Verisk’s total debt at the end of fourth-quarter 2020 was $3.21 billion, compared with $3.15 billion at the end of the prior quarter. Its cash and cash equivalent of $219 million at the end of the quarter was below this debt level, indicating that it doesn’t have enough cash to meet this debt burden. Also, the cash level can’t meet the short-term debt of $514 million.
The company’s business model centers on huge amounts of data. Consequently, it remains susceptible to operational risks related to security breaches in its facilities, computer networks, and databases, which might result in loss of its credibility and/or customers. Dependence on external sources for data supply can lead to contractual and pricing issues with data suppliers (some of them are also rival parties). Data theft and misuse by third-party contractors could also lead to loss of businesses and jeopardize the fundamental existence of the company.
Nevertheless, Verisk has a robust growth strategy that focuses on organic growth, product development and acquisitions. The company continues to invest in people, data sets, analytic solutions, technology and complementary businesses, with a view to keep itself updated with changing requirements in the markets it serves. The company is maintaining its focus on increasing solution penetration with customers, developing new proprietary data base and predictive analytics, and expanding into new customer sectors.
Zacks Rank and Stocks to Consider
Verisk currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader Zacks Business Services sector are The Interpublic Group of Companies IPG, Cross Country Healthcare CCRN and Charles River Associates CRAI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term expected earnings per share (three to five years) growth rate for Interpublic, Cross Country Healthcare and Charles River is pegged at 2.4%, 12% and 13%, respectively.
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