Why Is Verisk Analytics (VRSK) Up 5.4% Since the Last Earnings Report?

A month has gone by since the last earnings report for Verisk Analytics, Inc. VRSK. Shares have added about 5.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted 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 Misses Q1 Earnings on Muted Industry Growth

Verisk reported sedate first-quarter 2017 results on muted industry growth and related headwinds. Net income from continuing operations decreased to $108.8 million from $109.7 million in the year-earlier quarter on higher operating expenses. On a per share basis, net income from continuing operations remained flat at $0.64 owing to lower number of outstanding shares.

Adjusted earnings from continuing operations declined marginally to $0.74 per share from $0.75 in the year-ago quarter and missed the Zacks Consensus Estimate of $0.78.

Total revenue for the reported quarter improved to $502.6 million from $492.7 million in the prior-year period due to modest organic growth at constant currency basis. However, revenues missed the Zacks Consensus Estimate of $512 million. EBITDA (earnings before interest, tax, depreciation and amortization) from continuing operations for the quarter decreased 1.1% year over year to $245.7 million.

Segmental Performance

Decision Analytics segment’s revenues from continuing operations remained almost flat at $313.2 million and accounted for 62.3% of total revenue. Energy and Specialized Markets category revenues declined 5.9% year over year to $106.3 million, owing to end-market headwinds and lower revenues in environmental health and safety solutions. Insurance category revenues increased 4.1% to $178.6 million on solid underwriting solutions growth. Financial Services category revenues were marginally down to $28.3 million, as growth in media effectiveness and core banking solutions were offset by completed contracts.

Risk Assessment segment’s revenues grew 5.4% to $189.4 million, accounting for 37.7% of total revenue. Property-specific rating and underwriting information revenues improved 3.5% to $43.8 million, driven by an increase in underwriting solutions subscription revenues. Industry-standard insurance programs revenues were up 5.9% to $145.6 million, primarily attributable to growth in new solutions.

Acquisitions

During the quarter, Verisk acquired Bangalore-based data solutions company, Fintellix. Founded in 2006, Fintellix specializes in the development of data management platforms and regulatory reporting solutions for financial institutions. The company offers analytics, risk and compliance solutions for the banking sector.

Per the agreement, Fintellix will become part of Verisk’s Argus business. Fintellix’s advanced data management platform, along with its regulatory reporting expertise, will be a valuable addition to both Argus and Verisk. The collaboration will help the company offer better services and highly advanced solutions to its customers. In addition, this deal will also enable Verisk expand its foothold across India as well.  

Verisk also purchased Arium, a liability risk modeling and decision support firm, for an undisclosed amount. Formed in 1998, Arium or Architects for Risk Identification, Understanding, and Management specializes in developing risk models, mainly for the reinsurance industry. The company uses a unique methodology based on dependency theory. Its casualty analytics platform enables other companies to run historical and emerging scenarios and build their own scenarios across all casualty lines. Incorporating Arium’s methodologies will enable Verisk’s clients to comprehensively manage risks across their portfolios in the casualty market. We expect the acquisitions to be accretive for the company in the near future.

Balance Sheet and Cash Flow

At the end of the quarter, Verisk had about $155 million in cash and cash equivalents with long-term debt of $2,281 million. Net cash generated from operating activities in the reported quarter was $317.9 million compared with $303.9 million in the prior-year period.

Verisk repurchased 1.3 million shares during the quarter at an average price of $81.24 per share for $104 million. At quarter end, the company had $532 million worth of shares remaining under its share repurchase authorization.

Moving Forward

Verisk continues to deliver outstanding data analytics solutions to its customers across its core verticals of insurance, natural resources, and financial services. The company’s ability to generate strong cash enables it to meet its deleveraging objectives and helps it invest on behalf of its shareholders.

How Have Estimates Been Moving Since Then?

It turns out fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter.

Verisk Analytics, Inc. Price and Consensus

 

Verisk Analytics, Inc. Price and Consensus | Verisk Analytics, Inc. Quote

VGM Scores

At this time, Verisk Analytics' stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. Following the 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  It's no surprise that the stock has a Zacks Rank #4 (Sell). We expect below average returns from the stock in the next few months.

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