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.
Here we discuss about FactSet Research Systems Inc. (FDS - Free Report) , a company that has an expected long-term earnings per share growth rate of 10.4%. Moreover, its earnings are expected to register 11.6% growth in fiscal 2019 and 9.9% in fiscal 2020.
Also, the company outperformed the industry it belongs to year to date. Shares of FactSet have gained 18.3%, which compares favourably with 6.2% rise of the industry in the said time frame.
Factors Driving FactSet’s Performance
FactSet’s top line is being driven by higher sales of analytics products, content and technology solutions (CTS) and wealth management solutions along with an international price increase. We believe that its growing customer base, solid revenue growth, coupled with high client retention rate (91%) and a competitive pricing strategy will positively impact results going forward. In the fourth quarter of fiscal 2018, total revenues of $345.9 million grew 5.9% year over year on a reported basis and 5.3% organically.
Growth in Annual Subscription Value (ASV) reflects the rise in revenues from FactSet’s subscription services. The company is witnessing growth in ASV, driven by new client additions. In the fourth quarter of fiscal 2018, FactSet’s ASV of $1.39 billion increased 5.7% year over year. Organically, it increased $38.6 million during the quarter.
FactSet is strengthening its global presence, especially in the Asia Pacific region. The company opened a new office in Shanghai in May 2018 to offer its data and analytic solutions to an increasing number of investors and investment managers in China who seek better tools. FactSet’s expanding global presence has been contributing to its top line. Notably, the company’s ASV recorded 11% organic growth from the Asia-Pacific region and 5% from Europe in fourth-quarter fiscal 2018.
Despite riding on significant growth prospects, FactSet is not free from overhangs. A debt laden balance sheet may limit its future expansion and worsen its risk profile. Also, the company remains susceptible to foreign currency exchange rate fluctuations due to its international presence. However, we believe that solid revenue growth and higher annual subscription value bode well for FactSet.
Zacks Rank & Stocks to Consider
Currently, FactSet is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Zacks Business Services sector are Paychex, Inc. (PAYX - Free Report) , WEX Inc. (WEX - Free Report) and Automatic Data Processing Inc. (ADP - Free Report) , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rates for Paychex, WEX and Automatic Data Processing are 8.5%, 15% and 12.5%, respectively.
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