Why Hold Strategy is Apt for IHS Markit (INFO) Right Now
IHS Markit Ltd. INFO is currently benefiting from a diversified global consumer base and strong recurring revenues.
Shares of the company have improved 14% in the past year compared with 8% rise of the industry.
With expected long-term earnings per share growth rate of 10.7% and a market cap of $20.8 billion, IHS Markit seems to be a stock that investors should retain in their portfolios for now.
Diversified Global Customer Base
IHS Markit has a consultative product development approach, which means it works closely with its customers in introducing offerings and enhancing established ones. This, in turn, has helped it build strong customer relations over time. The company’s offerings are well established across multiple industries and geographies. It intends to continue innovating and developing new product offerings as well as prioritizing investments toward automotive, energy and financial services.
Strong Recurring Revenue Generation Capacity
IHS Markit’s business model ensures solid recurring revenue generation capacity. Its products and services are offered primarily through recurring fixed and variable fee agreements, which ensure stable revenues and cash flows. This strong business model along with operational efficiency and financial discipline boosts margins. In the last reported quarter, adjusted EBITDA margin improved 40 basis points (bps) to 39.1% on a year-over-year basis. Also, IHS Markit’s business involves low capital requirement, which keeps cash in good shape.
IHS Markit Ltd. Revenue (TTM)
IHS Markit Ltd. Revenue (TTM) | IHS Markit Ltd. Quote
Acquisitions Expanding Offerings
Acquisitions are enabling the company to expand offerings and strengthen its international footprint. IHS Markit made three acquisitions in 2018 — Ipreo, DeriveXperts and PetroChem Wire. While DeriveXperts enhances the company’s derivatives data and valuations products, PetroChem Wire complements its OPIS product offerings. Ipreo is aimed at boosting the Financial services segment.
Wrapping up
Although IHS Markit is riding on growth prospects, it is not free from overhangs. The company experiences high acquisition-related costs. Costs might escalate further as it plans to make significant investments in automotive, energy and financial services. Nevertheless, we believe that solid recurring revenue generation capacity, strong global customer base and acquisitions bode well for the company.
Zacks Rank & Stocks to Consider
Currently, IHS Markit carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Business Services sector are General Finance Corporation GFN, Heidrick & Struggles International, Inc HSII and Automatic Data Processing, Inc ADP, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected earnings per share (three to five years) growth rate for General Finance, Heidrick & Struggles and Automatic Data Processing is 11%, 13.5% and 12.8%, respectively.
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