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FDS vs. TRU: Which Business Information Firm is Better Placed?

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Companies belonging to the business information industry operate in a dynamic environment characterized by changing customer behaviors, preferences and demographics.

They are increasingly focusing on providing more customer-centric solutions, moving from conventional data solutions to technical and domain-specific expertise, data analytics solutions, financial consultancy, and operational consultancy services.

Post the 2017 tax reform, corporate spending has increased with U.S. companies pouring tax savings into growth initiatives. This is spurring demand for business information services. Technavio expects global business information market to witness CAGR of more than 5% during the period 2019-2023.

The Zacks Business – Information Services industry, which is a stock group within the broader ZacksBusiness Services Sector, has outpaced the S&P 500 in the past year. While the stocks in this industry have collectively gained 23.1%, the Zacks S&P 500 Composite has rallied 17%.

Given this backdrop, let’s do a comparative analysis of two business information services stocks FactSet Research Systems Inc. (FDS - Free Report) and TransUnion (TRU - Free Report) . FactSet has a market capitalization of $8.5 billion and TransUnion’s market cap is $10.9 billion.

As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

FactSet has performed impressively on the bourse year to date compared with TransUnion and the industry. While FactSet stock gained 12.9%, TransUnion and the industry rallied a respective 3% and 1.1% over the said time frame.

 

 

Earnings Guidance

Earnings growth along with stock price gains is often an indication of a company’s strong prospects.

TransUnion’s current quarter and current year earnings are projected to grow 28% and 32.6% year over year, respectively. FactSet’s respective figures are pegged at 11.8% and 12.1% for the current quarter and current year.  Thus, TransUnion has an edge over FactSet in terms of quarterly and yearly earnings growth.

Earnings Estimate Revisions

The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

The Zacks Consensus Estimate for TransUnion’s current-quarter earnings remained unchanged while that for current-year earnings increased 1.2% over the past 60 days. For FactSet, current-quarter and current-year estimates remained unchanged for the same time frame. So, there is comparatively higher optimism surrounding the TransUnion stock.

Net Margin

Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.

FactSet’s TTM net margin of 24.9% is above TransUnion’s figure of 18.3% and the industry’s tally of 19.6%.

Valuation

Comparing the companies with each other and the industry on the basis of price to forward 12 months’ earnings, we see that FactSet’s 22.10X is ahead of TransUnion’s 20.07X and the industry’s 19.58X.

So, FactSet looks expensive compared with TransUnion and the industry.

Bottom Line

Our comparative analysis shows that FactSet scores over TransUnion in terms of price performance and net margin. However, a faster share price rally led to a higher valuation for FactSet. TransUnion has an edge in terms of yearly expected earnings growth and estimate revisions.

Other Stocks to Consider

A few better-ranked stocks in the Zacks Business Services sector are BG Staffing (BGSF - Free Report) and Total System Services (TSS - Free Report) , each carrying a Zacks Rank #2.

The long-term expected EPS (three to five years) growth rate for BG Staffing and Total System Services 20% and 14.2%, respectively.

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