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It has been about a month since the last earnings report for FactSet Research (FDS). Shares have added about 2.9% in that time frame, outperforming 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 drivers.
FactSet Lags on Earnings and Revenues Estimates
FactSet Research Systems reported lower-than-expected second-quarter fiscal 2021 results.
Adjusted earnings per share of $2.72 missed the Zacks Consensus Estimate by a slight margin but increased 6.7% on a year-over-year basis, driven by improvement in operating results.
FactSet’s revenues of $391.8 million also missed the Zacks Consensus Estimate marginally but increased 6% year over year. The uptick was driven by higher sales of analytics, content and technology solutions.
Revenues in Detail
Organic revenues increased 4.9% year over year to $389.2 million. Region-wise, U.S. revenues increased to $248 million from $232.7 million in the year-ago quarter. EMEA revenues were $105.5 million compared with $102.1 million in the year-ago quarter. Asia Pacific revenues were $38.3 million compared with $34.9 million in the year-ago quarter.
ASV Plus Professional Services
FactSet’s Annual Subscription Value (“ASV”) plus professional services was $1.6 billion, up 5.5% organically. Buy-side and sell-side ASV growth rates were 5.5% and 6.3%, 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 $985.2 million, up 6.4% from the prior-year quarter’s levels. ASV from EMEA and Asia Pacific regions were $427.6 million and 159.8 million, up 4.8% and 9.4% year over year, respectively. FactSet added 164 clients in the reported quarter, primarily driven by an increase in corporate and wealth management clients, taking the total to 6,103. Annual client retention was 90%. At the end of the quarter, total employee count was 10,660, up 7.8% year over year.
Adjusted operating income came in at $127.8 million, up 8.4% from the year-ago quarter’s figure. Adjusted operating margin increased to 32.6% from 31.8% in the year-ago quarter.
Selling, general and administrative expenses decreased 8.2% to $80.1 million. Total operating expenses increased 4.6% to $275.7 million.
Balance Sheet and Cash Flow
FactSet exited the quarter with cash and cash equivalents of $602.7 million compared with $560.1 million in the previous quarter, and long-term debt of $574 million compared with $575.5 million at the end of the prior quarter. In the quarter, the company generated $140.7 million of cash from operating activities, while capital expenditures were $10.4 million. Free cash flow was $130.2 million.
Fiscal 2021 Outlook
The company continues to anticipate adjusted EPS in the range of $10.75-$11.15. The company expects revenues between $1.57 billion and $1.585 billion. Organic ASV plus professional services for fiscal 2021 is projected to increase in the range of $70-$85 million over fiscal 2020. Adjusted operating margin is projected in the range of 32. The annual effective tax rate is expected between 15% and 16.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, FactSet has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise FactSet has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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