It has been about a month since the last earnings report for Verisk Analytics (VRSK). Shares have added about 0.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Verisk due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Verisk Q3 Earnings Lag Estimates, Revenues Beat
Verisk Analytics reported mixed third-quarter 2019 results, wherein the company’s earnings lagged the Zacks Consensus Estimate but revenues surpassed the same.
Adjusted earnings per share of $1.12 missed the consensus mark by a penny but improved 3.7% on a year-over-year basis. The company’s bottom line benefited from organic growth, contributions from acquisitions, decline in interest expense and lower average share count, which were partially offset by the rise in depreciation and amortization expense and a higher effective tax rate.
Revenues of $652.7 million beat the consensus estimate by $1.9 million and improved 9% year over year on a reported basis and 7.6% on an organic constant-currency (cc) basis. The uptick came on the back of continued strength in the company’s Insurance segment and solid improvement in Energy and Specialized Markets.
Insurance segment revenues totaled $466.8 million, up 9.2% year over year on a reported basis and 7.7% in organic cc.
Within the segment, underwriting and rating revenues of $310.3 million rose 8.8% on a reported basis and 7.9% in organic cc. The improvement was primarily driven by increase in industry-standard insurance programs, property-specific underwriting and catastrophe modeling solutions revenues. Claims revenues amounted to $156.5 million, which improved 9.8% on a reported basis and 7.4% in organic cc. The uptick can be attributed to revenues from repair cost estimating and claims analytics solutions.
Energy and Specialized Markets segment revenues amounted to $142.5 million and improved 11.6% year over year on a reported basis and 8.7% in organic cc. The improvement can be attributed to revenues from market and cost intelligence solutions and core research and consulting.
Financial Services segment revenues of $43.4 million improved 0.1% year over year on a reported basis and 2.7% in organic cc. The segment benefited from increase in enterprise data management, and fraud and credit risk management solutions, which partially offset the decrease in portfolio management from nonrecurring consulting revenues.
Adjusted EBITDA of $309.3 million increased 9% on a reported basis and 7.7% in organic cc. Adjusted EBITDA margin of 47.4% was flat in the prior-year quarter.
Operating income in the third quarter was $75.7 million compared with $211.1 million in the prior-year quarter. Operating margin was 11.6% compared with 35.3% in the year-ago quarter.
Balance Sheet and Cash Flow
Verisk exited third-quarter 2019 with cash and cash equivalents of $311.8 million compared with $153.3 million at the end of the prior quarter. Long-term debt came in at $2.67 billion compared with $2.45 billion at the end of the previous quarter.
The company generated $213.6 million of cash from operating activities and capex was $61 million. Free cash flow was $152.9 million.
Share Repurchases & Dividend Payout
During the third quarter of 2019, through an accelerated share repurchase (ASR) agreement, Verisk repurchased roughly 491,000 shares at an average price of $152.84 for a total cost of $75 million. The company also entered into an additional $50 million ASR agreement. The associated shares will be delivered and settled in the fourth quarter of 2019. As of Sep 30, 2019, the company had $228 million under its share repurchase authorization.
The company paid out a cash dividend of 25 cents per share on Sep 30. On Oct 23, the company's board of directors approved a cash dividend of 25 cents per share to be paid out on Dec 31 to shareholders of record as of Dec 13.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Verisk has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact 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 D. 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. Notably, Verisk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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