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Why Is FactSet (FDS) Down 3.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for FactSet Research (FDS - Free Report) . Shares have lost about 3.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FactSet due for a breakout? 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.

FactSet Q1 Earnings Beat Estimates

FactSet Research Systems  reported  solid first-quarter fiscal 2021 results, with earnings and revenues topping the Zacks Consensus Estimate.

The company reported adjusted earnings per share of $2.88, which surpassed the Zacks Consensus Estimate by 5.1% and increased 11.6% on a year-over-year basis, driven by improvement in operating results.

FactSet’s revenues of $388.2 million surpassed the Zacks Consensus Estimate marginally and increased 5.8% year over year. The uptick was driven by higher sales of analytics, content and technology solutions.

Revenues in Detail

Organic revenues increased 5.1% year over year to $386.7 million. Region-wise, U.S. revenues increased to $244.3 million from $231.3 million in the year-ago quarter. EMEA revenues were $105.8 million compared with $100.8 million in the year-ago quarter. Asia Pacific revenues were $38.1 million compared with $34.5 million in the year-ago quarter.

ASV Plus Professional Services

FactSet’s Annual Subscription Value (“ASV”) plus professional services was $1.56 billion, up 5% organically. Buy-side and sell-side ASV growth rates were 5.1% and 4.4%, respectively. Nearly 84% of organic ASV was generated by buy-side and the rest by sell-side firms performing functions like mergers and acquisitions-advisory work, equity research as well as capital-markets services.

ASV generated from the United States was $958.5 million, up 5.6% from the prior-year quarter’s levels. ASV from EMEA and Asia Pacific regions were $422 million and 156.5 million, up 4.7% and 9.5% year over year, respectively. FactSet added 64 clients in the reported quarter primarily driven by an increase in corporate and wealth management clients, taking the total to 5,939. Annual client retention was 90%. At the end of the quarter, total employee count was 10,622, up 7.7% year over year.

Operating Results

Adjusted operating income came in at $133 million, up 6.6% from the year-ago quarter’s figure. Adjusted operating margin increased to 34.3% from 33.9% in the year-ago quarter. Selling, general and administration expenses increased 10.6% to $79.1 million. Total operating expenses increased 5.5% to $267 million.

Balance Sheet and Cash Flow

FactSet exited first-quarter fiscal 2021 with cash and cash equivalents of $560.1 million compared with $585.6 million in the previous quarter. Long-term debt of $575.5 million compared with $574.3 million at the end of the prior quarter. In the quarter, the company generated $89.3 million of cash from operating activities, while capital expenditures were $18.3 million. Free cash flow was $70.9 million.

Fiscal 2021 Outlook

The company reiterated its fiscal 2021 outlook. It continues to anticipate adjusted earnings per share (EPS in the range of $10.75-$11.15).

The company expects revenues between $1.57 billion and $1.585 billion. 
Organic ASV plus professional services for fiscal 2021 is projected to increase in the range of $55-$85 million over fiscal 2020.

Adjusted operating margin is projected in the range of 32. The annual effective tax rate is expected between 15% and 16.5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, FactSet has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise FactSet has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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