Back to top

Image: Bigstock

IHS Markit (INFO) Rides On Acquisitions, High Debt a Concern

Read MoreHide Full Article

IHS Markit Ltd. is benefitting from acquisitions, diverse customer base and strong business model.

Recently, the company delivered impressive results in third-quarter fiscal 2018 results, wherein earnings and revenues outpaced the Zacks Consensus Estimate. Adjusted earnings per share (EPS) of 58 cents beat the consensus mark by 3 cents and increased 2% year over year. Total revenues of $1 billion surpassed the consensus mark of $969 million and improved 11% on a year-over-year basis.

IHS Markit has an impressive surprise history. The company beat earnings estimates in each of the trailing four quarters, the average being 5.7%. For the fourth quarter, the consensus mark declined 5.2% in the past 30 days.

In a year’s time, shares of the company have rallied 22% compared with the industry’s rise of 21.2%.

 

Acquisitions: A Key Growth Strategy

Acquisitions enable IHS Markit to expand offerings and strengthen international foothold. So far in fiscal 2018, the company acquired DeriveXperts and Ipreo. These acquisitions were aimed at expanding the financial services business.

In fiscal 2017, the company acquired automotiveMastermind Inc (“aM”) and Macroeconomic Advisers (“MEA”). The aM buyout helped the company to enhance buyer experience in the car dealer market. The MEA buyout expanded macroeconomic offerings, particularly in the policy and financial markets.  

Diverse Customer Base

IHS Markit enjoys diverse global customer base and strong brand recognition. The company follows a consultative development approach and works closely with customers in introducing offerings as well as upgrading established ones. This, in turn, has resulted in strong customer relationships. The company’s offerings are currently well established across multiple industries and geographies. Moreover, IHS market continues to innovate and develop new product offerings as well as makes investments in automotive, energy and financial services.
 

Strong Business Model

IHS Markit possesses a strong business model with robust recurring revenue generation capacity. The company offers products and services through recurring, fixed and variable fee agreements that generate stable revenues and cash flows.

Furthermore, efficient utilization of business model, improved operational efficiency and financial discipline has culminated in impressive margin expansion. In the last reported quarter, adjusted EBITDA margin improved 20 basis points (bps) to 39% on a year-over-year basis.

Risks

IHS Markit’s balance sheet is highly leveraged. As of Aug 31, 2018, net long-term debt was $4.9 billion while cash and cash equivalents were $154.4 million. Such a cash position implies that IHS Markit needs to generate an adequate amount of operating cash flow to pay off debts. Moreover, high debt may limit expansion and worsen its risk profile.

The company’s business experiences event-driven seasonality. In the first quarter, the company witnesses lowest revenue and profit levels. The same improve during events like CERAWeek, an annual energy conference that is held in the second quarter of every year, as well as biennial release of the Boiler Pressure Vessel Code (“BPVC”) engineering standard. BPVC generates revenue for the company predominantly in the third quarter of every other year. Seasonality causes considerable fluctuations in revenues and profits, thus making prediction difficult.

Zacks Rank & Key Picks

Currently, IHS Markit carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader Business Services Sector include Broadridge Financial Solutions, Inc. (BR - Free Report) , GreenSky, Inc. and Convergys Corporation , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Broadridge, GreenSky and Convergys is 10%, 24.2% and 7.5%, respectively.

Best Electric Car Stock? You'll Never Guess It.

Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!

Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.

See Zacks Best EV Stock Free >>


See More Zacks Research for These Tickers


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


Broadridge Financial Solutions, Inc. (BR) - free report >>

Published in