Back to top

Image: Bigstock

FactSet (FDS) Up 5.3% Since Earnings Report: Can It Continue?

Read MoreHide Full Article

It has been about a month since the last earnings report for FactSet Research Systems Inc. (FDS - Free Report) . Shares have added about 5.3% 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 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 Tops Q4 Earnings & Revenue Estimates

FactSet ended fiscal 2017 on a strong note with reporting better-than-expected results for the fourth quarter. The company’s top and bottom lines also marked a significant year over year improvement.

The company reported adjusted earnings per share of $1.90, which surpassed the Zacks Consensus Estimate by a penny. The figure was toward the high end of the guided range of $1.86 to $1.92 per share. Moreover, adjusted earnings improved 12.4% on a year-over-year basis.

Quarter Details

FactSet’s revenues of $326.6 million increased 13.7% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $325 million. Moreover, reported revenues were toward the higher-end of management’s guidance range of $321-$328 million. Organic revenues increased 6.3% year over year to $301.3 million during the quarter.

FactSet witnessed better-than-expected growth across products and geographic regions, which aided quarterly revenues.

In the reported quarter, FactSet’s revenues from U.S. increased to $204.1 million while international revenues grew to $122.6 million. Excluding the impact of foreign currency, acquisitions and disposition, U.S. revenues and international revenues rose 5.6% and 7.6%, respectively, on a year-over-year basis.

The company’s Annual Subscription Value (ASV) increased 5.7% year over year to $1.32 billion as of Aug 31, 2017. Of this, nearly 84% was generated by buy-side clients while the rest can be attributed to sell-side firms performing functions like mergers & acquisition, advisory work and equity research.

FactSet added 115 clients in the reported quarter, taking the tally to 4,744. The company retained 91% of its clients. The percentage of client retention was more than 95% of ASV.

Coming to the operational metrics, FactSet reported a 22.4% rise in total operating expenses, primarily due to acquisitions and some restructuring expenses. As a percentage of revenues, operating expenses increased 530 basis points (bps) to 74.8%.

FactSet’s adjusted operating income increased 6.9% from the year-ago quarter to $100.3 million. However, operating margin decreased 220 bps year over year at 31.2%, owing to increased operating expenses as a percentage of revenues.

Adjusted net income during the quarter was $74.7 million compared with $68.6 million in the year-ago quarter.

FactSet exited the quarter with $194.7 million in cash and cash equivalents, compared with $161.7 million from the previous quarter. Long-term debt at the end of fiscal 2017 amounted to $575 million.

Cash flow from operations during the fiscal was $320.5 million. The company generated free cash flow of $283.7 million in the fiscal.

FactSet repurchased $281 million worth of its common stock under its existing share repurchase authorization. The company has still $244 million remaining under the share repurchase authorization. Moreover, it paid dividend $80.9 million in fiscal 2017.

Guidance

The company initiated guidance for the first quarter of fiscal 2018. For the fiscal first quarter, FactSet expects revenues in the range of $327-$333 million (mid-point $328 million).

Adjusted operating margin is expected between 31% and 32%. Adjusted earnings per share are projected in the band of $1.93-$1.99 (mid-point $1.96). The annual effective tax rate is expected within 25.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. 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 D. 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 styles scores.

Outlook

While estimates have been moving upward, the magnitude of the revision is net zero. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


FactSet Research Systems Inc. (FDS) - free report >>

Published in