A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Verisk Analytics, Inc. (VRSK - Free Report) has an expected long-term earnings per share growth rate of 13.2%. Moreover, its earnings are expected to register 27.7% and 9.6% growth, respectively, in 2018 and 2019.
The company’s price performance over the past year looks impressive. Share of Verisk have gained 31.7%, outperforming the industry’s and S&P 500’s gain of 27.8% and 14.3%, respectively.
We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include the company’s solid organic growth and benefits from multiple strategic business moves like investments, acquisitions and agreements.
Robust Organic Growth
Verisk continues to witness 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. The company continuously seeks to expand its portfolio by leveraging its deep knowledge and embedded position to develop new, proprietary data sets and predictive analytics by working with its customers to understand their evolving needs.
Notably, Verisk’s recorded an average organic revenue growth of about 8% over the past 10 years. In 2017, total revenues grew 5.3% on an organic constant currency basis. In first-quarter 2018, total revenues grew 7% on an organic constant-currency basis.
Verisk aims to create long-term value through organic growth. It continues to extend its footprint in new markets, with healthy long-term growth potential, through targeted international expansion. This holistic growth model will help it to strengthen its leading position in the market.
Subscription & Long-Term Contracts
Verisk continues to earn the majority of its revenues from subscriptions and long-term agreements. As of Mar 31, 2018, Verisk’s three reportable segments: Insurance, Energy and Specialized Markets and Financial Services generated a respective 82%, 80% and 75% of revenues from subscriptions and long-term agreements for its solutions.
Verisk’s operation in a large and diverse addressable market with low customer concentration helps mitigate operational risks. With high barriers to entry in the industry, Verisk also enjoys a dominant position.
We appreciate Verisk’s expertise in providing predictive data analytics decision by using advanced technologies to collect, interpret and analyze different types of data sets in real time and at scale. The company mainly uses advanced technologies such as the latest remote sensing and machine learning technologies along with cloud computing, which primarily drive the company’s business. A majority of the technologies used by Verisk is developed, maintained and supported by almost 20% of its employees.
The company’s efforts to stay technologically updated to meet varying customer and client demands look impressive. Such a deep technical prowess for analytics and Big Data provide it an unrivalled edge over its competitors. All these initiatives augur well for long-term growth and stability of the company.
Acquisitions have also been one of the key growth catalysts for Verisk. 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 two companies — Business Insight Limited on Feb 21 and Marketview Limited on Jan 5. Both these buyouts will help Verisk in its predictive analytics and consumer spending analytics decision making.
Verisk’s long-term business strategy includes growth through acquisitions. Internally, it is focused on evaluating and integrating acquisitions that are valuable for its shareholders. Further, acquisitions have contributed to its first-quarter 2018 earnings. The company continues to look for strategic acquisitions.
We are impressed with Verisk’s consistent record of returning value to shareholders in the form of share repurchases. Verisk returned 276.3 million, $326.8 million and $20.4 million to its shareholders, respectively, in 2017, 2016 and 2015. As of Dec 31, 2017, the company had $366.2 million available for buyback. Since the launch of the company’s share repurchase plan in May 2010, the company’s board of directors has authorized up to $2.8 billion for the purpose. In first-quarter 2018, the company repurchased 382,508 shares for an aggregate amount of $40 million. As of Mar 31, 2018, the company had $326 million remaining under its share repurchase authorization.
Such moves indicate the company’s commitment to create value for shareholders and underline its confidence in its business. These shareholder-friendly initiatives not only instill investors’ confidence but also positively impact earnings per share.
The aforementioned factors positively impacted Verisk’s performance in the last reported quarter. In fact, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive surprise of 4.8%. We believe the upbeat performance will continue in the quarters ahead, thus giving investors enough reasons to remain optimistic on the stock. Moreover, the Zacks Consensus Estimate for current quarter earnings is pegged at $1.00, indicating year-over-year growth of 21.9%.
Zacks Rank & Stocks to Consider
Currently, Verisk has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Business Services sector include The Dun & Bradstreet Corporation (DNB - Free Report) , TransUnion (TRU - Free Report) andBroadridge Financial Solutions Inc. (BR - Free Report) . All the stocks carry a Zacks Rank #2 (Buy).
The long-term expected earnings per share growth rates for Dun & Bradstreet, TransUnion and Broadridge are 4.5%, 10% and 10%, respectively.
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