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Verisk Rides on Data Analysis Expertise, Debt Woes Remain

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Verisk Analytics, Inc. (VRSK - Free Report) stock has rallied 21.8% on a year-to-date basis, outperforming the 14.3% rise of the industry it belongs to.

 

The company is currently benefiting from acquisitions, solid organic growth and the 2017 tax reform policy. Its expertise in providing predictive data analytics decision by using advanced technologies raises optimism.

Verisk reported impressive second-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate. Adjusted earnings per share of $1.06 surpassed the consensus mark by 5 cents and improved 29.3% on a year-over-year basis. Revenues of $601.3 million beat the consensus estimate of $586.2 million. The figure was up 14.9% year over year on a reported basis, 8.3% on an organic basis and 7.4% on an organic constant-currency basis.

What’s Driving Verisk Analytics?

Verisk’s expertise in providing predictive data analytics decision by using advanced technologies to collect and interpret different types of data sets look impressive. The company mainly uses advanced technologies such as latest remote sensing and machine learning technologies along with cloud computing. The majority of the technologies used by Verisk are developed, maintained and supported by almost 20% of its employees. Efforts to stay technologically updated to meet varying client demands and its technical prowess in analytics and Big Data provide Verisk an unrivalled edge over its competitors.

Higher organic revenue growth through a combination of increase in new customers for existing solutions, cross-sale of its existing solutions to existing customers and the sale of new solutions will help Verisk create long-term value. In first half of 2018, total revenues grew 8.3% organically and 7.2% on an organic constant-currency basis. This marks an improvement from 2017, wherein total revenues grew 4.5% organically and 5.3% on an organic constant currency basis.

Moreover, Verisk continues to earn a major portion of its revenues from subscriptions and long-term agreements. In the first half of 2018, Verisk’s three reportable segments: Insurance, Energy and Specialized Markets and Financial Services generated a respective 81%, 79% and 75% of revenues from subscriptions and long-term agreements for its solutions.

Acquisitions have been contributing to Verisk’s bottom-line growth. The company has been continuously acquiring and investing in companies globally to expand its data and analytics capabilities across industries. From 2015-2017, the company completed 21 acquisitions. In 2018 so far, the company has acquired three companies —Validus-IVC Limited on Jun 20, Business Insight Limited on Feb 21 and Marketview Limited on Jan 5. While the buyout of Validus will help improve and automate the claims settlement process, the other two acquisitions will help Verisk in its predictive analytics and consumer spending analytics decision making.

We are also impressed with Verisk’s consistent record of returning value to shareholders in the form of share repurchases. Since the launch of the company’s share repurchase plan in May 2010, the company’s board of directors has authorized up to $3.3 billion for the purpose, which includes an additional authorization of $500 million approved on May 16, 2018. In the first half of 2018, Verisk repurchased 1,711,166 shares of common stock for an aggregate price of $180.4 million. As of Jun 30, 2018, the company had $685.8 million available for share buyback under its repurchase program. In 2017, 2016 and 2015, Verisk repurchased shares worth $276.3 million, $326.8 million and $20.4 million, respectively. Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business.

Risks

Verisk’s balance sheet is highly leveraged. As of Jun 30, 2018, long-term debt was $2.04 billion while cash and cash equivalents were $132 million. Such a cash position implies that Verisk needs to generate adequate amount of operating cash flow to service its debt. Also, high debt may limit the company’s future expansion and worsen its risk profile.

Since Verisk’s business model centers on huge amount of data, it remains susceptible to operational risks related to security breaches in its facilities, computer networks, and databases, resulting in loss of its credibility and/or customers. Dependence on external sources for data supply can lead to contractual and pricing issues with data suppliers (some of them are also its rivals).

Zacks Rank & Stocks to Consider

Currently, Verisk carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few better-ranked stocks in the broader Business Services sector include Genpact (G - Free Report) , Automatic Data Processing (ADP - Free Report) and Broadridge (BR - Free Report) . All the stocks carry a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for Genpact, Automatic Data Processing and Broadridge is 10%, 11.3% and 10%, respectively.

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