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Bear of the Day: Thomson Reuters (TRI)

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Thomson Reuters (TRI - Free Report) , a Zacks Rank #5 (Strong Sell), is a leading provider of value-added information and technology to users in the fields of law, tax, accounting, financial services, higher education, reference information, corporate training and assessment, scientific research and healthcare.

Recent Earnings Data

In its Q1 18 earnings report, TRI missed the Zacks consensus earnings estimate, but beat the revenue estimate.  On a year over year basis earnings fell by -55.6%, and revenues declined by -51%.  The company had previously announced that they will be selling a 55% stake of its Financial and Risk business to Blackstone for $17 billion.  It is currently expected that management will used some of the proceeds for share buybacks. 

Management’s Take

According to Jim Smith, President and CEO, “We are encouraged by the best first-quarter performance in several years with each business having performed at or above our expectations. The health of our Q1 results gives us even greater conviction in our ability to stay focused on the opportunities at hand, while simultaneously working quickly to close the proposed F&R/Blackstone partnership and prepare both companies for future success. We are excited about the potential to further strengthen our Legal and Tax businesses -- both organically and inorganically, with the financial wherewithal and flexibility to deliver for our customers and shareholders.”

Looking Forward

While the long term outlook for TRI is positive, the transition period over the next few years due to the sale of its Financial & Risk business has caused earnings estimates to be trimmed by several coverage analysts.  Further, management significantly increased its corporate expense estimates due to stranded costs and investments; currently expected to be between $500-600 million.  The completion of the deal is expected to be on 9-30-18, so these expenses could change.  Further, if there is a delay on the closure of the deal, the stock repurchase program could be pushed out further than expected. 

Price and Earnings Consensus Graph

As you can see in the graph below, the stock price and future earnings estimates have been falling for most of 2018.

Thomson Reuters Corp Price and Consensus

Thomson Reuters Corp Price and Consensus | Thomson Reuters Corp Quote

Declining Earnings Estimates

Over the past 30 days, earnings estimates for Q2 18, Q3 18, FY 18, and FY 19 have all been negatively revised.  Q2 18 fell from $$0.51 to $0.12, Q3 dropped from $0.46 to $0.10, FY 18 plummeted from $2.06 to $0.70, and FY 19 was cut from $2.30 to $1.32.

Bottom Line

The big increase in corporate costs had many investors to react negatively to the announcement which caused the stock price and future earnings estimates to both see significant declines.  Further, the transition period has investors cautious on the stock for the near to mid-term.  Overall, most believe this will be a long term benefit for TRI, but the near term is a bit murky. 

If you are inclined to invest in the Technology Services segment, you would be best served by looking into either Bluecora Inc. (BCOR - Free Report) , and or Delphi Technologies (DLPH - Free Report) , both of whom currently carry a Zacks Rank #1 (Strong Buy) rating.

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