It has been about a month since the last earnings report for Verisk Analytics (VRSK - Free Report) . Shares have added about 3.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Verisk due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Verisk Analytics Beats on Q3 Earnings, Lags Revenues
Verisk Analytics reported mixed third-quarter 2018 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same.
Adjusted earnings per share (EPS) of $1.08 surpassed the Zacks Consensus Estimate by a penny and improved 30.1% on a year-over-year basis. The figure was driven by strong organic growth, 2017 tax reform policy and contributions from acquisitions. However, these were partially offset by increased depreciation and amortization, interest expenses as well as higher share count.
Quarterly revenues of $598.7 million missed the consensus mark by $1.2 million but improved 9% year over year on a reported basis. Also, the figure improved 4.7% year over year on an organic constant-currency (cc) basis, partially offset by costs related to a nonrecurring project in the year-ago quarter as well as adverse weather conditions.
Insurance segment revenues came in at $427.7 million, up 8% year over year on a reported basis and 5.5% at organic cc.
In the segment, underwriting and rating revenues of $285.1 million was up 8.9% on a reported basis and 6.3% at organic cc. The improvement was primarily driven by strength in the company’s catastrophe modeling services and underwriting solutions. Claims revenues of $142.6 million improved 6.3% on a reported basis and 4% at organic cc. The uptick can be attributed to revenues from repair cost estimating solutions and claims analytics.
As energy business’ end market continues to improve, Energy and Specialized Markets segment revenues of $127.7 million were up 14.6% on a reported basis and 6.3% at organic cc. The improvement can also be attributed to revenues from environmental health and safety services as well as growth in consulting and research businesses.
Financial Services segment revenues of $43.3 million increased 4% on a reported basis. However, the figure declined 9.2% at organic cc, primarily owing to an impact of approximately $6 million in non-recurring project revenues in the prior-year quarter.
Adjusted EBITDA of $284 million increased 5.4% on a reported basis and 1.6% at organic cc. Organic cc adjusted EBITDA margin was 48.5% compared with 50% in the prior-year quarter.
Adjusted EBITDA expenses (cost of revenues; selling, general and administrative expenses; investment income and others) increased 12.5% on a reported basis and 7.9% at organic cc. The upside was due to increased salaries and benefits associated with innovation and business growth of aerial imagery business.
Operating income for the third quarter was $211.1 million, up 1.3% from the prior-year quarter’s tally. Operating margin of 35.3% declined 270 basis points (bps) from the year-ago quarter’s figure.
Balance Sheet and Cash Flow
Verisk Analytics exited third-quarter 2018 with cash and cash equivalents balance of $147.6 million compared with $132 million in the last reported quarter. Long-term debt at the end of the quarter was $2.04 billion, flat sequentially.
The company generated $226.8 million of cash from operating activities and spent $55.2 million on Capex. Adjusted free cash flow was $171.6 million.
During the quarter, the company repurchased 0.9 million shares for $102 million. It also entered into a $50-million accelerated share repurchase (ASR) agreement. The shares repurchased will be delivered in the fourth quarter of 2018. As of Sep 30, 2018, the company had $584 million remaining under its share repurchase authorization.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Verisk has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Verisk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.