It has been about a month since the last earnings report for FactSet Research (FDS). Shares have added about 1.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is FactSet 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 catalysts.
FactSet Surpasses Q3 Earnings Estimates, Revenues Miss
FactSet Research Systemsreported mixed third-quarter fiscal 2020 results, wherein earnings topped the Zacks Consensus Estimate but revenues missed the same.
The company reported adjusted earnings per share of $2.86, which surpassed the Zacks Consensus Estimate by 17.2% and increased 9.2% on a year-over-year basis driven by lower employee-related operating expenses in response to the coronavirus pandemic.
FactSet’s revenues of $374.1 million marginally missed the Zacks Consensus Estimate and increased 2.6% year over year. The uptick was driven by higher sales of analytics, content and technology solutions, and wealth management solutions.
Revenues in Detail
Organic revenues increased 2.6% year over year to $375.3 million. Region-wise, U.S. revenues increased to $231 million from $227 million in the year-ago quarter. EMEA revenues were $105.4 million compared with $102.5 million in the year-ago quarter. Asia Pacific revenues were $37.7 million compared with $35.1 million in the year-ago quarter.
ASV Plus Professional Services
FactSet’s Annual Subscription Value (“ASV”) plus professional services was $1.5 billion, up 5% organically. Buy-side and sell-side ASV growth rates were 4.8% and 5.6%, respectively. Nearly 84% of organic ASV was generated by buy-side and the rest by sell-side firms performing functions like mergers and acquisitions advisory work,equity research and capital markets services.
ASV generated from the United States was $931.5 million, up 5% from the prior-year quarter’s level. ASV from EMEA and Asia pacific regions were $411.9 million and 150.4 million, up 3.7% and 8.9% year over year, respectively. FactSet added 55 clients in the reported quarter, taking the total number to 5,743. Annual client retention was 89%. At the end of the quarter, total employee count was 10,065, up 7.5% year over year.
Adjusted operating income came in at $133.4 million, up 8.6% from the year-ago quarter’s figure. Adjusted operating margin increased to 35.5% from 34% in the year-ago quarter. Selling, general and administration expenses decreased 2.1% to $81.7 million. Total operating expenses increased 2.1% to $252.4 million.
Balance Sheet and Cash Flow
FactSet exited third-quarter with cash and cash equivalents of $457.7 million compared with $343.5 million in the previous quarter. Long-term debt of $574.3 million was flat with the prior quarter figure. In the quarter, the company generated $151 million of cash from operating activities and capital expenditure was $11 million. Free cash flow was $139.9 million.
Fiscal 2020 Outlook
FactSet updated its fiscal 2020 outlook provided previously on Sep 26, 2019.
The company now anticipates adjusted EPS in the range of $10.4 and $10.6, compared with the previous anticipation of $9.85 to $10.15. The company expects revenues between $1.485 billion and $1.49 billion, compared with the previous expectation of $1.49 billion to $1.50 billion. Organic ASV plus professional services for fiscal 2020 is projected to increase in the range of $60-$75 million over fiscal 2019. The prior expectation was an increase of $65-$85 million. Adjusted operating margin is projected in the range of 33%-33.5%, compared with the previous projection of 28.5%-29.5%. The annual effective tax rate is expected between 15.5% and 16.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, FactSet has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise FactSet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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